Abstract
AbstractThis study examines if the inflationary of Malaysia is due to monetary or real factor. The examination is based on the Quantity Theory of Money (QTM). The data are in quarterly and range from year 1997 to 2018. The main determinants to be tested are money supply (M1, M2 and M3), real gross domestic product (RGDP) and real broad effective exchange rate (RBEER). The Autoregressive Distributed Lags (ARDL) model and the nonlinear ARDL model are employed. The empirical results detect M3 as the best proxy for money supply. The results reveal that money supply has short-run impact on inflation meanwhile the RGDP has both short-run and long-run impacts on inflation. QTM only holds partially in the short-run but invalid in the long-run. The main determinant of inflation is RGDP in the long-run. Therefore, the policymakers should strive for stable economy growth through accommodation of both fiscal and monetary policy.KeywordsInflationAsymmetric effectQuantity theory of moneyReal factor
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