The effects of macroeconomics and financial stability on purchasing power competitiveness in Malaysia and Thailand

• Main Author: Abu Bakar, Mohd Jaffri
• Format: Thesis
• Language: English
• Published: 2022
• Subjects: HG Finance
• Online Access: http://eprints.utm.my/108291/1/MohdJaffriAbuBakarPAHIBS2022.pdf.pdf; http://eprints.utm.my/108291/; http://dms.library.utm.my:8080/vital/access/manager/Repository/vital:154389
• Institution: Universiti Teknologi Malaysia

In order to align its economic development with the pillar objectives of ASEAN Economic Community 2025, ASEAN members, especially Malaysia and Thailand , need to ensure the macroeconomic and financial factors are stable, controlled, and support all their development plans. The purchasing power competitiveness becomes a crucial factor in the global economic environment because the world is connected in trade, finance, and social aspects. This study investigates the impact of macroeconomic and financial stability on purchasing power competitiveness in Malaysia and Thailand between January 1994 and March 2020. The multilateral exchange rate, trade openness, world oil prices, overnight policy rate, stock market index, and world crude palm oil prices are considered in this study. Firstly, the traditional and nonlinear unit root tests were employed to validate the hypothesis of purchasing power parity. Secondly, the study applied the nonlinear Autoregressive Distributed Lag (NARDL) in proving the existence of the nonlinear structure and serial independence in the variable's series data. Furthermore, the study utilized the nonlinear Hatemi-J causality to prove the variables' positive and negative causality effects. The study's findings confirmed evidence of an asymmetric relationship between the variables, and nonlinear causality verified a bidirectional relationship. Therefore, a change in any of these macroeconomic and financial variables, whether the trade openness, world oil prices, overnight policy rate, stock market index or crude palm oil prices, would influence the purchasing power competitiveness in Malaysia and Thailand in the long-run and short-run. Therefore, the policymakers in both countries should consolidate and reconsider an underlying policy and strategies to stabilize the value of purchasing power competitiveness and vice versa, as targeted.