New evidence on financial openness in Malaysia

摘要

This paper reports the results of an empirical study to ascertain the importance of external factors on the determination of domestic interest rate and to estimate the degree of openness of the Malaysian financial market employing the Edwards and Khan's [Int. Monet. Fund Staff Paper 32 (1985) 377] model. Quarterly data for two different time periods, 1973.1-1985.3 and 1991.1-1998 3 have been used in our empirical study. The findings reveal that financial liberalization has made the Malaysian interest rate more responsive to foreign interest rates. The regression results seem to confirm the causal observation that the Malaysian economy is more open after 1990 and prior to Exchange Control 1998. With the domestic financial market more integrated with foreign financial market, any external shock would be transmitted to the domestic economy, and any attempts to insulate the economy from external shock would be extremely difficult. Based on the findings of the study, some reflections on national responses to the economic crisis in particular selective capital control and currency peg are offered.