| Through the application of econometric techniques that can deal with changes in regimes, this thesis attempts to improve our understanding of the monetary transmission mechanism in Malaysia, a developing economy that has undergone tremendous shifts in its economic and financial structure as well as its monetary policy regime in the past twenty years. The interest rate pass-through was estimated to show that the interest rate pass-through in Malaysia had experienced a crucial upward shift since the mid-1990s. Markov-switching vector autoregressions were applied to illustrate the shifts in the stability of the monetary transmission mechanism in Malaysia. Within this framework, the thesis offers an evaluation regarding the most effective transmission channels in Malaysia during these different periods. The results show that the interest rate channel works mostly indirectly, via the exchange rate and credit channel, while the asset price channel was important during periods of high financial market volatility. |
