World economy and international economic relations

Divisia monetary model of exchange rate determination: the case of Philippines

Economic Annals-XXI

Economic Annals-ХХI: Volume 172, Issue 7-8, Pages: 9-13

Citation information:
Leong, Ch.-M., Puah, Ch.-H., & Ismail, Sh. (2018). Divisia monetary model of exchange rate determination: the case of Philippines. Economic Annals-XXI, 172(7-8), 9-13. doi: https://doi.org/10.21003/ea.V172-02

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Choi-Meng Leong
PhD (Financial Economics),
Lecturer,
Faculty of Business and Information Science,
UCSI University
Lot 2864 (P/L 1319), Block 7, Muara Tebas Land District, Isthmus,
Tanjong Seberang Pending Point,
Sejingkat, 93450 Kuching, Sarawak, Malaysia
leongcm@ucsiuniversity.edu.my
ORCID ID: https://orcid.org/0000-0001-7463-6392

Chin-Hong Puah
PhD (Financial Economics),
Associate Professor,
Faculty of Economics and Business,
University of Malaysia Sarawak
Kota Samarahan, Sarawak, 94300, Malaysia
chpuah@unimas.my
ORCID ID: https://orcid.org/0000-0003-0187-7413

Shafinar Ismail
PhD (Finance),
Associate Professor,
Faculty of Business Management,
University of Technology MARA Melaka
Alor Gajah, Melaka, 78000, Malaysia
shafinar@bdrmelaka.uitm.edu.my
ORCID ID: https://orcid.org/0000-0002-0339-0003

Divisia monetary model of exchange rate determination: the case of Philippines

Abstract. In literature, inferior performance still prevails as one of the unresolved issues with regard to the monetary model of exchange rate. A money demand function that is unstable can contribute to the inferior performance of the model. One of the causes for an unstable money demand function is the application of the simple sum monetary aggregate in the estimation. Therefore, an alternative measurement of money, the Divisia monetary aggregate, is applied in the estimation of the monetary model of exchange rate. The results show that cointegration exists between monetary fundamentals and the exchange rate in the Divisia model. Consequently, to estimate the exchange rate for the Philippines, the Divisia monetary aggregate can be used as an alternative money supply.

Keywords: Divisia Monetary Aggregate; Monetary Policy; Exchange Rate; Autoregressive Distributed Lag; Monetary Model of Exchange Rate

JEL Classification: E41; E52; C22

Acknowledgements: Financial support from University of Malaysia Sarawak (UNIMAS) via Dana Principal Investigator research grant: 03(DPI21)985/2013(04) is gratefully acknowledged.

DOI: https://doi.org/10.21003/ea.V172-02

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Received 6.09.2018

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