The effectiveness of overnight policy rate as a nominal anchor for Malaysian monetary policy

• Main Authors: Umar, Mohammed, Dahalan, Jauhari
• Format: Conference or Workshop Item
• Language: English
• Published: 2015
• Subjects: HJ Public Finance
• Online Access: http://repo.uum.edu.my/17049/1/16.pdf; http://repo.uum.edu.my/17049/
• Institution: Universiti Utara Malaysia

This paper examines the effectiveness of Overnight Policy Rate (OPR) as a nominal anchor for Malaysian monetary policy and the process through which the monetary authority determines the policy rate in the economy.The paper applies Generalized Method of Moments (GMM) estimators to estimate both baseline and augmented policy rules.The findings of the post OPR adoption and full sample periods are characterized by forward-looking policy rule.Moreover, the study uses the augmented monetary policy rule to identify the factors that determine the overnight policy rate in the economy.The results confirm that the overnight policy rate framework serves as a nominal anchor for the economy. The policy implication of the findings is that for Malaysian economy to continue keeping the overnight policy rate to the required basis point, Bank Negara Malaysia should further enjoy monetary policy independence to strengthen the OPR framework adopted in the economy.