Abstract—This paper examines monetary independence during the period when Malaysia had a fixed exchange rate and an open capital account regime. The objective is to assess the relevance of the Impossible Trinity for policy. The evidence of cointegration between the Malaysian and US interest rates during this period, suggests that there is no monetary independence in the long run. However, our results show there is: Malaysia retains some monetary autonomy in the short run. The loss of long-run monetary autonomy under peg/open capital was in line with the trinity, and may be one reason the peg was eventually abandoned for managed floating in July 2005.
Index Terms—Impossible trinity, Malaysia.
Soo Khoon Goh is with the Universiti Sains Malaysia (e-mail: skgoh@usm.my).
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Cite: Soo Khoon Goh, "Can a Country be Exempted from Impossible Trinity: Evidence from Malaysia," Journal of Economics, Business and Management vol. 3, no. 7, pp. 731-734, 2015.