merged

Effectiveness of Exchange Rate and Inflation Factor towards External Debt
in Malaysia
Nurlaila binti Abd Aziz
Supervisor: Dr. Hazman bin Samsudin
Bachelor of Economics (Natural Resources)
School of Social and Economic Development
External debt, inflation, and the exchange rate is a common economic indicator that
influences the economic growth, especially during a crisis. Therefore, this study is
conducted to analyze the effectiveness of exchange rate and inflation factor towards
external debt for Malaysia using a nonlinear autoregressive distributed lags (NARDL)
model. The objective of the study is to examine the nonlinearity relationship between
the variables and also to identify the most influences variable towards the external
debt from 1971 to 2016. The estimated NARDL model affirms the presence of
asymmetries in the exchange rate. In the long run, it is found that the increasing and
decreasing in exchange rate leads to increase in external debt. Meanwhile, the
increase in inflation rate leads to increase in external debt, and decreasing in inflation
rate leads to decrease in external debt. The study concludes the exchange rate
response more to positive change while inflation rate response more to negative
change.
1447 | UMT UNDERGRADUATE RESEARCH DAY 2018