Granger-Causes of the Ringgit-US Dollar Exchange Rate after 2005

Abstract

The paper investigates Granger-causal relations between the Ringgit-USD exchange rate and selected domestic and international economic variables after the flotation of the Ringgit beginning with 25 July 2005. Results based on lag-augmented Vector Autoregression, generalized impulse responses and data measured in daily frequency indicate strong Granger-causal relationships with the Dow Jones Industrial Average and oil prices. Evidence is also indicative for a causal relationship with the Shanghai Composite Index. Positive shocks in these three variables lead an appreciation of the Ringgit. These results provide insights for policy makers in East Asia in their attempt to manage the floating of their currency.