I haven’t got much time today, but I got an email from Lars last night on his post, and I thought it would be of interest to many (excerpt):
The Christensen family arrived in Malaysia yesterday. It is vacation time! So since I am in Malaysia I was thinking I would write a small piece on Malaysian monetary policy, but frankly speaking I don’t know much about the Malaysian economy and I do not follow it on a daily basis. So my account of how the Malaysian economy is at best going to be a second hand account.
However, when I looked at the Malaysian data something nonetheless caught my eye. Looking at the monetary policy of a country I find it useful to compare the development in real GDP (RGDP) and nominal GDP (NGDP). I did the same thing for Malaysia. The RGDP numbers didn’t surprise me – I knew that from the research I from time to time would read on the Malaysian economy. However, most economists are still not writing much about the development in NGDP.
In my head trend RGDP growth is around 5% in Malaysia and from most of the research I have read on the Malaysian economy I have gotten the impression that inflation is pretty much under control and is around 2-3% – so I would have expected NGDP growth to have been around 7-8%. However, for most of the past decade NGDP growth in Malaysia has been much higher – 10-15%…
I won’t comment much on this…yet…because like Lars I’m due for a holiday, and won’t be back til late next week. But this is an interesting outsider’s perspective and an application of market monetarist views to monetary policy in Malaysia.
I have some substantive thoughts on the subject, but with work and the GDP release due this afternoon, I’ll have to leave it until I get back on Thursday next. Suffice to say, I’m not that keen on using the Ringgit as the primary monetary policy instrument.