This paper examined empirically the

This paper examined empirically the relationship between prices and money for Malaysia. We employed monthly data
and applied cointegration using the Johansen approach and application of the Toda-Yamamoto causality approach to
study the money and prices interaction. Using Johansen cointegration approach, our results show long-run association
between prices and money, in line with previous research in other countries (see for example Benbouziane and Benamar
(2004)). This mean that prices and money move together in the long-run. Using the powerful causality testing procedure
developed by Toda and Yamamoto (1995), we found evidence of a uni-directional link from money to prices without
significant feedback. This tends to support the quantity theorist’s view that the causal relation between money and prices
is from the former to the latter, in line with Masih and Masih’s (1998) and Tang’s (2004) work.
Thus, the monetary authorities can consider control of the money supply (M1, M2, and M3) to influence and control
inflation. This is well known that the objective of Malaysian monetary policy is to maintain price stability in the form of
low inflation in order to create a stable environment for sustainable economic growth. As suggested by monetarists, this
can be best achieved by maintaining a steady rate of growth of the money supply, roughly corresponding to the long-run
growth of the real output in order to achieve price stability and economic disturbances.
This study also suggests that the monetary policy should be conducted with care. Money supply can cause domestic price,
and the latter variable plays an important role in determining Malaysia’s import demand in the long run. An increase in
domestic price might make imported goods become cheaper. Consequently, it might deteriorate the Malaysia external
balance because of increasing demand on imported goods.
The above results provide evidence support the quantity theorist’s view that postulate a uni-directional causation that runs
from monetary aggregates to prices. We, however, suggest that the significant of our results could possibly be improved
upon by applying a control variable to avoid possible bias of using bivariate framework in causality analysis as highligted
by Al-Yousif (1999), that bivariate framework is potentially misspecified and maybe flawed due to the
ommission-of-variable phenomenon. Thus, we suggest by adding domestic real activity and/or real exchange rate into the
bivariate VAR framework between money and price.

Hasil (Bahasa Indonesia) 1:

Karya ini dikaji secara empiris hubungan antara harga dan uang untuk Malaysia. Kami bekerja data bulanandan cointegration diterapkan menggunakan pendekatan Johansen dan penerapan pendekatan kausalitas Toda-Yamamotostudi interaksi uang dan harga. Menggunakan pendekatan cointegration Johansen, hasil kami menunjukkan jangka panjang Asosiasiantara harga dan uang, sesuai dengan penelitian sebelumnya di negara lain (Lihat misalnya Benbouziane dan Benamar(2004)). ini berarti bahwa harga dan uang bergerak bersama dalam jangka panjang. Menggunakan kausalitas kuat yang prosedur pengujiandikembangkan oleh Toda dan Yamamoto (1995), kami menemukan bukti uni-directional link dari uang untuk harga tanpaumpan balik yang signifikan. Ini cenderung untuk mendukung kuantitas teoretikus 's pandangan bahwa hubungan kausal antara uang dan hargaadalah dari yang pertama untuk yang kedua, sesuai dengan Masih dan darirama (1998) dan Tang (2004) bekerja.Dengan demikian, otoritas moneter dapat mempertimbangkan kontrol dari pasokan uang (M1, M2 dan M3) untuk mempengaruhi dan kontrolinflasi. Hal ini juga diketahui bahwa tujuan Malaysia kebijakan moneter adalah menjaga stabilitas harga dalam bentukinflasi yang rendah untuk menciptakan lingkungan yang stabil bagi pertumbuhan ekonomi yang berkelanjutan. Sebagai disarankan oleh monetarists, inidapat dicapai dengan mempertahankan laju pertumbuhan jumlah uang beredar, kira-kira sesuai dengan jangka panjang stabilpertumbuhan output untuk mencapai stabilitas harga dan gangguan ekonomi riil.This study also suggests that the monetary policy should be conducted with care. Money supply can cause domestic price,and the latter variable plays an important role in determining Malaysia’s import demand in the long run. An increase indomestic price might make imported goods become cheaper. Consequently, it might deteriorate the Malaysia externalbalance because of increasing demand on imported goods.The above results provide evidence support the quantity theorist’s view that postulate a uni-directional causation that runsfrom monetary aggregates to prices. We, however, suggest that the significant of our results could possibly be improvedupon by applying a control variable to avoid possible bias of using bivariate framework in causality analysis as highligtedby Al-Yousif (1999), that bivariate framework is potentially misspecified and maybe flawed due to theommission-of-variable phenomenon. Thus, we suggest by adding domestic real activity and/or real exchange rate into thebivariate VAR framework between money and price.