| Summary: | The main objective of this study is to determine the effects of real
exchange rate changes on the real Malaysian trade balance and the
domestic output during the pegged exchange rate regime,
1977:1{1998:2, using quarterly data. The cointegration results suggest
that a real ringgit exchange rate depreciation improves the Malaysian
balance of trade in the long run.The impulse response analysis suggests
that the effects of a depreciation of ringgit on the trade balance and
domestic output are quite similar. A devaluation will initially improve
the trade balance and domestic output, after which the trade balance
starts to deteriorate and then the recession sets in, but subsequently
both the trade balance and domestic output improve.
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