Study on the Effect of Economic Factors on the Malaysian Exchange Rate

As the Malaysian currency is depreciating, economic factors' influence on the volatility of the Malaysian exchange rate must be explored. The World Development Indicators (WDI) compiled annual time series data on currency exchange rates, GDP, and unemployment rates. The Ministry of Statistics of Malaysia provided the data for inflation rates. From 1989 to 2018, 120 observations were tested with the Eviews software. In the first place, descriptive statistics determine the data's mean, minimum, maximum kurtosis, skewness, and standard deviation. Data stationarity is tested using the Phillips-Perron (P.P.) and Augmented Dickey-Fuller (ADF) techniques. Using a correlation test, you may find out if there's a link between the two variables. Finally, the impact and significance of the association between the variables are examined by multiple regression analysis. The data shows a substantial correlation between GDP and the exchange rate. There is a strong correlation between GDP, inflation, and the exchange rate. When unemployment is high, the exchange rate falls. However, according to this study, unemployment and inflation do not affect the volatility of the currency rate. Malaysia must reassess its monetary policy to keep the Ringgit steady.