Do inpayments and outpayments respond to exchange rate changes asymmetrically: Evidence from Malaysia

ABSTRACT

Since the pass-through of exchange rate changes on import and export prices are asymmetric, we expect a country’s inpayments (export earnings) and outpayments (cost of imports) to also react to exchange rate changes asymmetrically. We demonstrate this hypothesis by considering trade between Malaysia and each of her 11 largest trading partners. We find that while the short-run effects of exchange rate changes on Malaysia’s inpayments and outpayments are asymmetric with all partners, the long-run asymmetric effects are present in less than half of the partners. The results are partner specific.

KEYWORDS:

• Asymmetry analysis
• exchange rate
• inpayments
• Malaysia
• outpayments
• trading partners

Acknowledgments

Valuable comments of an anonymous referee are greatly appreciated. Any errors, however, are our own.

Notes

¹ Pesaran, Shin, and Smith (2001) show that their upper-bound critical values are also good for models that have a combination of I(0) and I(1) variables.

² See Shin, Yu, and Greenwood-Nimmo (2014, 291).

³ For more on the application of these methods, see Delatte and Lopez-Villavicencio (2012), Verheyen (2013), Bahmani-Oskooee and Fariditavana (2015), Bahmani-Oskooee and Saha (2015), Gogas and Pragidis (2015), Durmaz (2015), Baghestani and Kherfi (2015), Pal and Mitra (2016), Al-Shayeb and Hatemi-J. (2016), Lima et al. (2016), Nusair (2017), Aftab et al. (2017), Arize, Malindretos, and Igwe (2017), and Gregoriou (2017).

⁴ These results are more or less consistent with those reported by Bahmani-Oskooee and Harvey (2006).

⁵ All other diagnostic statistics are similar to those in Table 1 and do not need detailed explanations. There is a lack of serial correlation in most models, most optimum models are correctly specified, and estimates are stable.