Impact of Macroeconomic Policy Instruments and External Shock on Unemployment Rate in Malaysia

Abstract

This paper examines the impact of macroeconomic policy instruments and external shock on unemployment rate in Malaysia. Using the quarterly data from 2006(Quarter 1) to 2015 (Quarter 4) the study found that GDP growth, price of oil, broad money supply and average overnight interbank rate have significant and negative impact on unemployment rate in Malaysia. The findings of the study also indicate the existence of Okun’s law which postulates A positive relationship between GDP and unemployment. Policy makers could formulate policies related to the above macroeconomic variable to enhance unemployment reduction. On the other hand, the inflation rate shows a positive effect but is not significant.