Malaysia's Central Bank Response Post 1997 Asian Financial Crisis

This article explores Malaysia's central bank, Bank Negara Malaysia's (BNM) response to the 1997 Asian Finance Crisis. The article begins with the debate on the endogeneity of money and causality tests of money supply, liquidity and GDP using Malaysian data for the period 1982-2012. As money supply is endogenously determined by GDP and liquidity, BNM has shifted Malaysia's monetary regimes – from monetary targeting to interest rate. An unstable demand for money, financial reforms and liberalisation of financial markets post 1997 are some factors which made monetary targeting difficult to achieve. BNM's pursuit of development goals in enhancing efficient financial markets will contribute to a more effective interest rate transmission mechanism in the longer term