Tuesday, October 20, 2009

Tan Sri Governor's Thoughts On MYR...

...are the same as mine:

"Asked if the ringgit should not be allowed to appreciate too much as economic growth could be affected, she said the current level of the currency actually reflected the country's economic fundamentals.

'I want to emphasise that our export sector has been resilient despite the appreciation of the ringgit,' she said."

Read the rest of her comments here. Regardless of this consistently given message (I've heard this same comment from her quite a few times in the past four years), I don't think any diehards are going to change their position that the Ringgit is undervalued.

I'm still working on the promised post on trade elasticities - or rather, trying to find the time to work on it - but my first impressions were correct.

Yup, my initial work-ups were wrong.

I was looking primarily at the time series properties of exports and imports as they relate to the exchange rate. After a quick run through of the literature, turns out that you should actually do fully-specified export and import demand models. Since that's beyond the scope of this blog, I'm working on reduced-form models (only essential variables, not too many lags). At the moment I'm getting some unexpected results, even by my stubbornly contrarian standards.

What's this to do with exchange rates? It has to do with the second part of her comment, on trade. Stay tuned.

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