Is Ringgit Really Influenced by Crude Oil Price? Evidence From Commodity and Bank Lending Markets

Contemporary Economics (2019), Vol. 13 No. 4, pp. 405-414

10 Pages Posted: 25 Mar 2020

See all articles by Abdul Razak Abdul Hadi

Abdul Razak Abdul Hadi

University of Kuala Lumpur

M Huridi

affiliation not provided to SSRN

Syeliya Md Zaini

University of Kuala Lumpur

Zalina Zainudin

Universiti Kuala Lumpur Business School

Date Written: December 27, 2019

Abstract

This study aims to investigate the effects of crude oil price (COP) and base rate (BR) on the strength of the Ringgit (RM) against the US Dollar (USD). Within the framework of the international Fisher effect theory, the study employs yearly data from the Bloomberg Database over an observed period from 1984 through 2017. Using bivariate Engle-Granger cointegration test as an estimation tool, the study reveals the presence of a long-term relationship between the RM and COP. However, the results of the Granger Causality test show an absence of a dynamic relationship between them. From the second analysis between the RM and BR, the study finds the presence of both long-term and short-term relationships between them. Interestingly, the relationship is somewhat bidirectional. Overall, the study has suggested the relevance of the international Fisher effect in explaining how variations in the RM exchange rate are elucidated by the bank lending market. In addition, it is worth noting that both BR and COP exert a significant influence on the strength of the RM against USD over time.

Keywords: Bivariate cointegration test, Crude oil price, Malaysia base rate, Malaysia exchange rate, Granger causality test, error-correction term, International Fisher theory

JEL Classification: G15, F10, O11

Suggested Citation

Abdul Hadi, Abdul Razak and Huridi, M and Zaini, Syeliya Md and Zainudin, Zalina, Is Ringgit Really Influenced by Crude Oil Price? Evidence From Commodity and Bank Lending Markets (December 27, 2019). Contemporary Economics (2019), Vol. 13 No. 4, pp. 405-414, Available at SSRN: https://ssrn.com/abstract=3545309

Abdul Razak Abdul Hadi (Contact Author)

University of Kuala Lumpur ( email )

1016, Jalan Sultan Ismail
Kuala Lumpur, 50250
Malaysia

M Huridi

affiliation not provided to SSRN

Syeliya Md Zaini

University of Kuala Lumpur ( email )

1016, Jalan Sultan Ismail
Kuala Lumpur, 50250
Malaysia

Zalina Zainudin

Universiti Kuala Lumpur Business School ( email )

Level 8, Bangunan Yayasan Selangor
No. 74, Jalan Raja Muda Abdul Aziz
50300 Kuala Lumpur
Malaysia

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