The monetary movement of the ringgit Malaysia against the euro

Joshini John, (2005) The monetary movement of the ringgit Malaysia against the euro. Universiti Malaysia Sabah. (Unpublished)

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Abstract

This research is carried out under the hypothesis that an exchange rate series does not display random walk behaviour but is instead a first order negative autocorrelation. A daily data of 6 years for the Malaysian Ringgit against the Euro exchange rate was used in this research. This paper first tests some basic characteristics, such as the skewness, kurtosis and the normality of the time series data for the Malaysian Ringgit against the Euro exchange rate and the first difference of the logarithms of the exchange rate using the Jarque-Bera statistics. Both the raw and the transformed data showed signs of nonnormality. Subsequently, the presence of unit root is tested using the Augmented Dickey Fuller test (ADF) and not the Dickey-Fuller test (DF) as pre-planned to determine whether this series displayed random walk behaviour. This is because the series is of lag 2. Thirdly, this research checked whether the series is a first order negative autocorrelation using the Durbin-Watson test. Since the DW test has its shortcomings, the Breusch-Godfrey Serial Correlation LM test was then carried out. After running all the tests, we can conclude that even though the series does display some tendency towards random walk, we cannot thoroughly accept it as that because the ADF test is carried out under the assumption that the series has a constant variance. An exchange rate series does not have constant mean and variance. However, because of the lack of the number of observations, we cannot categories this series either to display random walk behaviour or to have a negative first order autocorrelation.

Item Type: Academic Exercise
Uncontrolled Keywords: exchange rate, Malaysian Ringgit, Augmented DickeyFuller test, Dickey-Fuller test, Jarque-Bera statistic
Subjects: H Social Sciences > HB Economic Theory
Q Science > QA Mathematics
Divisions: SCHOOL > School of Science and Technology
Depositing User: MDM SITI AZIZAH IDRIS
Date Deposited: 27 Feb 2014 01:39
Last Modified: 12 Oct 2017 04:11
URI: http://eprints.ums.edu.my/id/eprint/8330

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