BWFF3033 FINANCIAL MARKET AND INSTITUTIONS

TABLE OF CONTENTS

INTRODUCTION................................................................................................................................. 2 LITERATURE REVIEW .................................................................................................................... 3 LITERATURE REVIEW BASED ON INFLATION ........................................................................ 3 LITERATURE REVIEW BASED ON INTEREST RATE ............................................................... 4 LITERATURE REVIEW BASED ON MONETARY POLICY ........................................................ 4 LITERATURE REVIEW BASED ON STOCK AND INVESTMENT ............................................ 5 METHODOLOGY ............................................................................................................................... 6 Data Source ......................................................................................................................................... 6 Estimation Technique ......................................................................................................................... 6 RESULTS AND DISCUSSION ........................................................................................................... 7 RESULTS ........................................................................................................................................... 7 DISCUSSION ..................................................................................................................................... 9 CONCLUSION ......................................................................................................................... 11 REFERENCES ......................................................................................................................... 12 APPENDIX............................................................................................................................... 14

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BWFF3033 FINANCIAL MARKET AND INSTITUTIONS A Time Series Analysis on Correlation between Inflation Rate, Monetary Policy and Interest rate with Gross Domestic Product

Mohamad Helmi Surep, Norhidayah Mohd Idros, Zarina Mohd.Nor, Nor Faezah Che Hamzah and Nur Amirah Mohamad Colloege of Business (COB), School of Economic, Finance and Banking (SEFB) Universiti Utara Malaysia (UUM) 06010, Changloon Kedah, Malaysia

Abstract: This paper examines the correlation between inflation rate, monetary policy and interest rate with gross domestic product (GDP) in Malaysian over the period 1980 to 2010. The paper reports a strong relation between inflation rate based on CPI, monetary policy in money supply and interest rate for deposit account with gross domestic product (GDP) in Malaysian. Keyword: Inflation rate, monetary policy, interest rate, gross domestic product. INTRODUCTION INTRODUCTION: A time series model can provide a reasonable benchmark to evaluate the value added in forecasting of economic theory relative to the pure explanatory power of the past behaviour of the variable. In this paper we conduct a detailed analysis of the time series analysis on correlation between inflation rate, monetary policy and interest rate with gross domestic product (GDP) focusing on the Malaysia, for which 30 years time series analysis from 1980 to 2010. Our main goal is to investigation whether this 3 variable have correlation between long-run economic growth and GDP. The gross domestic product (GDP) or gross domestic income (GDI) is the value of total production of goods and services in a country over a specified period and it is one of the measures of national income and output for a given country's economy. GDP can be defined in three ways, all of which are conceptually identical. First, it is equal to the total expenditures for all final goods and services produced within the country in a stipulated period of time (usually a 365-day year). Secondly, it is equal to the sum of the value added at every stage of production (the intermediate stages) by all the industries within a country, plus taxes less subsidies on products, in the period. Third, it is equal to the sum of the income generated by production in the country in the periodthat is, compensation of employees, taxes on production and imports less subsidies, and gross operating surplus (or profits). The most common approach to measure GDP is using the expenditure method: GDP = Private Consumption + Gross Investment Government Spending + (Export Import) According to the graft, it shows the Malaysia GDP per purchasing power parity (PPP) from year 1980 till 2010. We can see that at year 1980 increase to 1985 and then stable at year 1986 and 1987. Next, it rises till year 1998 but drop at year 1989. After that, the graft also shows that the GDP per capita PPP increase slowly until 2009 which is a value is 14000 that the highest value than other years. Lastly, it decline to 13900 at year 2000.

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From this graph we can conclude that the graft has fluctuated among year and the factor that influences this GDP became fluctuated is inflation based on CPI, interest in deposit and monetary policy in money supply. In this paper also we had a additional variable that might be influence the GDP, but our analysis is not focus on this additional variable we just give a overview how does this stock market will influence GDP by giving a past research by other researcher in the literature review section. Next, the basic assumptions for this research are: Null hypothesis (H0) : Inflation rate, interest rate and money supply do not have a Significant influence on Gross Domestic Product in Malaysia

Alternative hypothesis (H1): Inflation rate, interest rate and money supply have a Significant influence on Gross Domestic Product in Malaysia Lastly, this paper consists of five sections. In section, the literature review that is consists of four variables that have been chosen. In section three, the methodology that is will discuss about how we get the data and the estimation technique. In section four, the result of the analysis and the discussion based on our literature review. Section five is our conclusion about this research. LITERATURE REVIEW LITERATURE REVIEW BASED ON INFLATION Multivariate Time Series Analysis on Correlation between Inflation Rate and Employment Rate with Gross Domestic Product This journal is written by Fadli Fizari Abu Hassan Asari, Zuraida Mohamad, The Sofia Alias, Norazidah Shamsudin, Nurul Syuhada Baharuddin and Kamaruzaman Jusoff on 2011 at Faculty of Business Management, Universiti Teknologi MARA, Dungun and at Faculty of Forestry, Universiti Putra Malaysia. This study examined the correlation between inflation rate and total employment with gross domestic product. It uses time series data ranging from 1982 to 2006 and the scope is in Malaysia. The researcher applied STATA software to process the data using log-log model in this study

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BWFF3033 FINANCIAL MARKET AND INSTITUTIONS A Comparison of Time Series Models for Forecasting GDP Growth and Inflation This journal is written by Massimiliano Marcellino on April 2007 at IEP-Universita Bocconi, IGIER and CEPR. In this paper the researcher conduct a detailed analysis of the forecasting performance of univariate time series models for GDP growth and inflation, the two key variables for macroeconomic analysis, focusing on the US, for which very long time series are available. The researcher has use Forecasting method that have linear method, timevarying methods and non-linear methods. In summary, the gains from a more careful specification of the benchmark model for GDP growth and inflation appear to be both statistically and economically significant. LITERATURE REVIEW BASED ON INTEREST RATE An Impact Analysis of Real Gross Domestic Product Inflation and Interest Rates on Stock Prices of Quoted Companies in Nigeria The journal case study from Department of Accounting, Faculty of Management Sciences Olabisi Onabanjo University, Ago-Iwoye, Ogun State, Nigeria by Daferighe. Emmanuel E and Aje. Samuel O. This journal was published in online on 2009 by EuroJournals and this journal aimed at examining the relationship between real GDP, inflation and interest rates, and stock prices with a view to determining whether the fluctuations in the behaviour of stock prices is influenced by those variables and analyse the impacts arising thereby. This research intends to assess the impact of real GDP, inflation and interest rates on stock prices of quoted companies in Nigeria and the method that use in this research are based on Stock Market Value Index (SMVI). The Impact of Foreign Interest Rates on the Economy: The Role of the Exchange Rate Regime The journal case study from Department, International Monetary Fund, Street, N.W., Washington on 27 June 2007 by Julian di Giovanniy and Jay C. Shambaugh. This journal about the effect of interest rates in based on countries on other countries' annual real GDP growth. This paper explores the connection between interest rates in major industrial countries and annual real output growth in other countries and examines the potential channels through which major-country interest rates affect other economies. We confirm the results by moving beyond standard panel analysis, using a random coefficient model which allows us to use a variety of controls and test why some countries experience more of an impact from foreign interest rates. LITERATURE REVIEW BASED ON MONETARY POLICY Impact of Monetary Policy on Gross Domestic Product (GDP) The journal case study from Iqra University, Business Administration Department, Karachi and College of Management Sciences, Karachi on 27 June 2007. This literature was written by Irfan Hameed and Ume-Amen it also can be obtained from the website ijcrb.webs.com. This research article focuses on the impact of monetary policy on GDP and the country was Pakistan. The study proved that the interest rate has minor relationship with GDP but the growth in money supply greatly affects the GDP of an economy. This research use three method is a data sources and nature of data in detail, the model to be applied to find out the results and the hypothesis to be checked for this study.

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BWFF3033 FINANCIAL MARKET AND INSTITUTIONS Fiscal and Monetary Policies and Economic Growth The journal case study from Doctoral School of Finance and Banking, Academy of Economic Bucharest, Romania and it was written by Moisa Altar on January 2003. This paper analyses the way in which monetary and fiscal policy influences the performances of economic growth and the methodology that this author use basis of a dynamic model with discrete variables of the Sidrauski- Brock type, with infinite-lived households and money in the utility function. This paper aim is to analyze the influence of several monetary and fiscal decisions on the optimal trajectories and on the performance-function of the model The Effects of Money Supply on Economic Growth in Iran This literature was written by Fahimeh Movahedi Rad about The Effects of Money Supply on Economic Growth in Iran. It was published in EuroJournals on 2012 at Department of Human Sciences, Islamic Azad University Mashhad Branch, and Mashhad, Iran. The journal can be obtained from the website www.eurojournals.com/ajsr.htm. This literature concern about symmetric impacts of monetary shocks on economic growth Applying econometric technique by co-integration analysis and Error correction mechanism in Iran economy during the period 1960-2010. This literature consists the theoretical and empirical literature of the asymmetric effects of monetary shocks also Effects too Money Supply on Economic Growth in Iran .In conclude, this happen at short run economic growth by increasing unexpected money and must pay a higher cost in the long run to decrease inflation. Linkage between Monetary Instruments and Economic Growth This literature was written by Hameed Gul, Dr Khaid Mughal, and Dr Sabit Rahim on May 2012 at Islamabad about the Linkage between Monetary Instruments and Economic Growth. In the literature it is showed that how the decisions of monetary authorities influence the macro variables like GDP, money supply, interest rates, exchange rates and inflation. The foremost objective of monetary policy is to enhance the level of welfare of the masses. The method of least square OLS was used as strategy to explain the relationship between the variables under study. LITERATURE REVIEW BASED ON STOCK AND INVESTMENT Stock Market and Economic Growth: An Empirical Analysis for Germany The journal case study from Department of Applied Informatics, University of Macedonia, Thessaloniki, Macedonia, Greece by Adamopoulus Antonios. It was published in online on April 15, 2010. The main objective of this paper was to investigate the causal relationship among economic growth, stock market development and bank lending at the Germany for the period 1965-2007 using a Vector Error Correction Model (VECM). Financial Stock Market and Economic Growth in Developing Countries: The Case of Douala Stock Exchange in Cameroon Rachelle Wouono Ognaligui was written this literature on May 2010 about Financial Stock Market and Economic Growth in Developing at Cameroon, China. This paper examines Sims causality test based on Granger definition of causality was used to examine causality relationships between stock markets and economic growth in Cameroon based on the time series data from 2006 to 2010. Our paper comes up with the opportunity given to the Cameroonian government to understand that it is time to find financial policies, to encourage companies and develop financial stock market culture, and enhance to push companies to initiate IPO instead of bank loans when money is needed to increase their investment. It used

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BWFF3033 FINANCIAL MARKET AND INSTITUTIONS Granger equation as a methodology in this literature to calculate whether stock market development causes economic growth, or vice versa. In addition, METHODOLOGY Data Source Data Source: In order to check the correlation between inflation rates, monetary policy and interest rate with GDP we required to research inflation rate based on CPI, interest rate on deposit in financial institution, monetary policy money supply (M2) and GDP at purchase price. All this data is in term of currency Ringgit Malaysia and this data gather from the period 1980-2010. The main data source in this regard has been the World Data Bank and the additional sources was official websites of Bank Negara Malaysia has also been visited in this regard. Variables: Description for each variable under study is as under: Monetary Policy: Monetary policy is the total amount of money available in an economy at a particular point of time. The importance of an appropriate monetary aggregate can hardly be over emphasized, particularly for those countries that attach their monetary policy to monetary aggregates. In this case we only focus in money supply M2 Interest rate is the term interest rate usually means any bank lending rate. However, the rates dont always move rapidly because they are driven by different forces. This rate is focus more on deposit in financial institution. In this research we only look at bank institution. Inflation refers to the persistent rise in general price level. Inflation affects the distribution of both income and wealth. In this case our is more to inflation based on consumer price index CPI

Interest Rate:

Inflation:

Estimation Technique Estimation Technique: To conduct this time series analysis we have applied EVIEW software to process the data by using log-log model. The logarithm equation is as below: In this EVIEW software we conduct two difference way analyses. LOGGDP = - + LOGINFLATION - LOGINTEREST + LOGM2

Unit Roof Test: this Unit Roof Test use to integration orders of variables are examined by Augmented Dickey Fuller (ADF) unit root tests. Unit root tests are important to test integration between the variables involved in the research conducted. This analysis involving GDP, inflation, interest rate and money supply in two difference analyses that is trends and trend intercept. This result of unit test we show whether the data have integrated between GDP with inflation, interest rate and money supply. 6|Page

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Co-Integration Test: This is followed by a multivariate co-integration analysis. The multivariate co-integration techniques developed by Johansen and Juselious; Engle and Granger using a maximum likelihood estimation procedure allows researchers to estimate simultaneously models involving two or more variables to circumvent the problems associated with the traditional regression methods used in previous studies on this issue. Therefore, the Johansen method applies the maximum likelihood procedure to determine the presence of cointegrated vectors in non-stationary time-series. Vector error correction model: Since the variables included in the VAR model are found to be co-integrated, the next step is to specify and estimate a Vector Error Correction Model (VECM) including the error correction term to investigate dynamic behaviour of the model. Once the equilibrium conditions are imposed, the VEC model describes how the examined model is adjusting in each period towards its long-run equilibrium state. RESULTS AND DISCUSSION RESULTS 4.1 Descriptive Statistics Table 1: Descriptive statistics on the data Stats Min Max Mean Sd Sk GDP 54285.00 765965.0 283427.8 221375.6 0.824469 Inflation 0.000000 10.00000 3.225806 2.077012 1.060141 Interest 2.000000 10.00000 5.483871 2.606031 0.368642 M2 4.30E+10 1.06E+12 3.59E+11 3.10E+11 0.844453

Descriptive statistics: Table 1 shows the descriptive statistics including the minimum and maximum values, mean, standard deviation and skewness of data. Firstly standard deviation is widely used measure of the variability or dispersion, being algebraically more tractable through practically less robust than the expected deviation or average absolute deviation. A low standard deviation indicates that the data point to be very close to mean, vice verse. Standard deviation for GDP at purchaser's prices is RM283427.8 and standard deviation for inflation based on CPI is 2.077012. Next standard deviation for interest based on deposit is 2.606031and lastly standard deviation for money supply M2 is RM310000000000 or 3.10E+11. In addition skewness is a term describing the non-symmetry of a bell shaped distribution. Skewed right is when too much data is on the left side of the curve, skewed left is when too much data is on the right side of the curve. Skewness is important to know because it can create some inaccurate estimates of means and standard deviations of data expected to be symmetric. To get more analysis on these data we conduct a further analysis that is unit root tests.

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BWFF3033 FINANCIAL MARKET AND INSTITUTIONS 4.2 Unit Roof Tests Table 2: Results of Unit Roots Tests Based on Augmented Dickey-Fuller (ADF) Test Trend Intercept and Trend Level First Difference Level First Difference LogGP -0.275231 -4.013205** -2.373107 -3.920186** LogINFLATION -2.131528 -2.972549* -3.233263 -4.449267** LogINTEREST -1.794903 -4.585405** -3.074261 -5.126128** LogM2 -0.662644 -5.219095** -2.600832 -2.895983** Notes: *, ** denote significance at 5% and 1% significant levels respectively. Unit roof tests: In this analysis all variable have been tested at level and first difference. From Augmented Dickey-Fuller (ADF) test we did trend analysis and trend intercept analysis, firstly the result for trend analysis show that for t-statistics are statistically not significant at level meaning that the null hypothesis is not rejected. This indicates that these series are non-stationary at their level from. Consequently, the process is continued into the first difference values of data and is show that this data have stationary at first difference. After al variable finish with this analysis, our analysis continued to ADF trend intercept analysis. The result from this analysis give us the same result from trend analysis that is stationary at first difference but not at level. Based on table 2, it is show that all variable are now stationary at first difference. Thus, all of the respective null hypotheses are rejected. This analysis still continues with co-integration test. 4.3 Co-integration Test Co-integration test: Cointegration rank (rank of matrix o) is estimated using Johansen methodology. Johansens approach derives two likelihood estimators for the CI rank: a trace test and a maximum Eigen value test. Table 3: Results of Johansen-Juselius Test Eigenvalue Statistics Trace statistic 5% Critical Value 1% Critical Value r=0 0.845452 72.08355** 47.21 54.46 r=1 0.612749 31.00404* 29.68 35.65 r=2 0.307547 10.13305 15.41 20.04 r=3 0.088878 2.047721 3.76 6.65 Note: * indicates a significant level at 5%. The Trace and Max. Eigen value statistics have been adjusted based on T-kn/T where T=number of effective observations, k=lag length, n=number of independent variables The CI rank (R) can be formally tested with the trace and the maximum Eigen value statistics. The results are presented in Table 3. The trace statistic either rejects the null hypothesis of no co-integration among the variables or does not reject the null hypothesis that there is one co-integration relation between the variables. Start by testing H0: r = 0. If it rejects, repeat for H0: r = 1. When a test is not rejected, stop testing there and that value of r is the commonly-used estimate of the number of cointegrating relations. In this test, H0: r = 1 is rejected at the 5% level (31.00 > 29.68). In other words, this trace test result rejects the null hypothesis that these four variables are cointegrated at one co-integration. Since null hypothesis is significant at r=1 so that we can conclude that at one co-integration exists

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BWFF3033 FINANCIAL MARKET AND INSTITUTIONS among the variable. To know whether our variable moves closely to achieve that long run equilibrium we will conduct further analysis that is Vector Error Correction. Table 4: Long-run Equilibrium Coefficients for VECM Variable LNINTEREST LNINFLATION LNM2 C R-squared Adjusted R-squared S.E. of regression Sum squared resid Log likelihood Durbin-Watson stat Coefficient -0.031969 0.098254 0.853898 -10.17191 0.975875 0.972979 0.138898 0.482317 18.24930 1.323069 Std. Error t-Statistic 0.101699 -0.314346 0.054399 1.806186 0.049306 17.31824 1.430300 -7.111731 Mean dependent var S.D. dependent var Akaike info criterion Schwarz criterion F-statistic Prob(F-statistic) Prob. 0.7559 0.0829 0.0000 0.0000 12.29226 0.844986 -0.982710 -0.794118 337.0831 0.000000

Vector Error Correction Model: The presence of cointegration between variables show that exists one co-integration among variable, to know whether GDP, inflation, interest and money supply have long-run relationship in the period 1980 - 2010 the VEC model can be applied. LGGDP = - 10.1719 + 0.09825LGINFLATION - 0.03196LGINTEREST + 0.85389LGM2 The cointegrating equation: Which is given at above has been normalized for LGGDP just to get meaning from the coefficients. As all variable are logarithmic, we may interpret coefficients in terms of elasticity because we have one co-integration among variable. So we may say that 1 percent increase in inflation is associated with 0.098 percent increase in Malaysias GDP. The coefficient of money supply M2 rate is also significant, and its value is 0.854 showing that 1 percent increase (decrease) will increase (decrease) GDP by 0.854 percent. On the other hand, the coefficients of interest showing that 1 percent increase in interest on deposit is associated with 0.0319 percent decrease in GDP. Thus, GDP elasticity with respect to money supply M2 is more elastic as compared to GDP elasticity with respect to inflation and interest. This result clearly shows that monetary policy is the main factor that effect Malaysias GDP from 1980 to 2010. DISCUSSION DISCUSSION: This paper currently study about the correlation between inflation rate, monetary policy and interest rate with gross domestic product (GDP) in Malaysian over the period 1980 to 2010. From the finding it is show that the entire variable has a correlation with GDP in economic growth respectively. But the relationship between GDP and entire variable can divide into two, which is in short-run economic growth and long-run economic growth. INFLATION AND GDP From our finding we can conclude that inflation only have a short-run economic growth, a very limited role in GDP and have negative relationship with GDP. According to Fadli Fizari Abu Hassan Asari et al.(2011) in journal Multivariate time series analysis on correlation between inflation rate and employment rate with gross domestic product has mention that 9|Page

BWFF3033 FINANCIAL MARKET AND INSTITUTIONS the effects of inflation on economic growth continues to be an important and complex topic in economic. Based on statement, if inflation has real economic effects, then governments can influence economic performance through monetary policy. Other that he also mentions that The structuralisms argue that inflation is necessary for economic growth, whereas the monetarists argue the opposite and he stated that Inflation does not affect real output in the long run, but that in the short-run inflation negatively affects output. Besides this journal, from other journal also give a same result from their research for example a journal that is A comparison of time series models for forecasting GDP growth and inflation by Massimiliano Marcellino (2007) has mention that We can anticipate that we find a very limited role for nonlinearity for both GDP growth and inflation, while a careful specification of the linear models is very important and the conclusion that led them in research say that Inflation forecasts produced by the Phillips curve generally have been more accurate than forecasts based on other macroeconomic variables, including interest rates, money and commodity prices INTEREST AND GDP From this analysis it shows that interest rate in deposit only has negative relationship with GDP and it will effect in short-run economic growth only. From other finding by Julian di Giovanniy and Jay C. Shambaugh (2007) in their journal The Impact of Foreign Interest Rates on the Economy: The Role of the Exchange Rate Regime show that The main finding thus implies that there are real costs to the loss of monetary autonomy that comes with pegging and provides further support for the hypothesis that interest rates can have substantial effects on the real economy. Specifically, base-country interest rates that are 1 percentage point higher lead to a 0.20 percentage point decline in annual GDP growth in pegged countries as opposed to no change in countries with floats this clearly show that interest only give negative relationship to GDP as Julian di Giovanniy and Jay C. Shambaugh (2007) said. MONETARY POLICY AND GDP Based on this analysis money supply give a positive relationship to GDP and it is more to long-run economic growth compare to inflation and interest rate. From the journal that is impact of monetary policy on gross domestic product (GDP) by Irfan Hameed and UmeAmen stated that Monetary policy rests on the relationship between the rates of interest in an economy, that is the price at which money can be borrowed, and the total supply of money. Monetary policy uses a variety of tools to control one or both of these, to influence outcomes like economic growth, inflation, exchange rates with other currencies and unemployment from this statement it show that money supply or monetary policy will affect many part of economic, not only GDP. In our case money supply has effect the most in GDP so that the percentage increase in GDP is higher in money supply. Other than that, according Fahimeh Movahedi Rad in his journal The Effects of Money Supply on Economic Growth in Iran stated that although policy makers can increase the economic growth to some extent by supplying unexpected amount of money, but with reduction of money supply and inflation, they should spend much more due to the reduction of economic growth. Thus economic policy makers should always consider monetary disciplines and macroeconomic stability and they should not sacrifice it for short-term meager economic growth interest. Based this statement it give us evidence about our analysis.

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BWFF3033 FINANCIAL MARKET AND INSTITUTIONS STOCK MARKET AND GDP At the introduction section we have discuss about our additional variable that will affect Malaysias that is stock market. It this section we will give a brief example and evidence how does stock market effect GDP or economic growth. Firstly according to Adamopoulus Antonios in his journal Stock Market and Economic Growth: An Empirical Analysis for Germany. Stock market development may influence economic growth is risk diversification. Obstfeld suggests that international risk sharing through internationally integrated stock markets improves the allocation of resources and accelerates the process of economic growth. Evolution of stock market has impact on the operation of banking institutions and hence, on economic promotion. This means that stock market is becoming more crucial, especially in a number of emerging markets and their role should not be ignored. Information in stock markets is contained in equity prices, while loan managers collect that in banks. So this how will stock market influence the growth of economic. In addition, journal Financial Stock Market and Economic Growth in Developing Countries: the Case of Douala Stock Exchange in Cameroon by Rachelle Wouono Ognaligui stated that The financial stock market facilitates higher investments and the allocation of capital, and indirectly the economic growth. Sometimes investors avoid investing directly to the companies because they cannot easily withdraw their money whenever they want. But through the financial stock market, they can buy and sell stocks quickly with more independence. An efficient stock market contributes to attract more investment by financing productive projects that lead to economic growth, mobilize domestic savings, allocate capital proficiency, reduce risk by diversifying, and facilitate exchange of goods and services. Positive causal correlation between stock market development and economic activity. Many other researchers argue that there is a positive correlation between financial development and economic growth. From both of this report it clearly show how does stock market affect the GDP. CONCLUSION Conclusion: In this paper we have provided an extensive evaluation of the role of sophisticated time series analysis on correlation between inflation rate, monetary policy and interest rate with gross domestic product. We know that the factor that influences GDP became fluctuated is inflation based on CPI, interest in deposit and monetary policy in money supply. Our conclusion is inflation and interest rate influence the GDP in the short run only. It means that inflation and interest rate only have a short-run economic growth, a very limited role in GDP and have negative relationship with GDP. In addition, there is no relationship between inflation and interest rate with GDP in the long run. However, from this analysis money supply and our additional variable that is stock market give a positive relationship to GDP and it is more to long-run economic growth compared to inflation and interest rate. Besides, money supply or monetary policy will affect many part of economic, not only GDP. Therefore, the result is called unidirectional since only money supply and stock market can influence the GDP in the long run. This finding is particularly evident because we use real time data or considering only the period starting from 1980 until 2010. It is recommended that future researchers should improve the reliability and validity of the result by replacing the other independent variables such as level of income, population and others.

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REFERENCES Ake, B. and Ognaligui, R.W. (2010) 'Financial Stock Market and Economic Growth in Developing Countries: The Case of Douala Stock Exchange in Cameroon', International Journal of Business and Management, 5(5), pp. 82-88 [Online]. Available at: www.ccsenet.org/journal/index.php/ijbm/article/.../4707 (Accessed: 26th October 2012). Antonios, A. (April 15, 2010) 'Stock Market and Economic Growth: An Empirical Analysis for Germany', Business and Economics Journal, 1(), pp. 1-11 [Online]. Available at: astonjournals.com/manuscripts/Vol2010/BEJ-1_Vol2010.pdf (Accessed: 14th October 2012). Carlin, W. and Mayer, C. (2003) 'Finance, investment, and growth', Journal of Financial Economics, 69(), pp. 191226 [Online]. Available at: www.law.yale.edu/documents/pdf/cbl/4-4Feldman4-.pdf (Accessed: 29th October 2012). Emmanuel E, D and Samuel O, A (2009) 'An Impact Analysis of Real Gross Domestic Product Inflation and Interest Rates on Stock Prices of Quoted Companies in Nigeria', International Research Journal of Finance and Economics, (25), pp. 53-63 [Online]. Available at: www.eurojournals.com/irjfe_25_05.pdf (Accessed: 15th October 2012). Fadli Fizari Abu Hassan Asari, Nurul Syuhada Baharuddin, Nurmadihah Jusoh, Zuraida Mohamad, Norazidah Shamsudin and Kamaruzaman Jusoff (2011) 'A Vector Error Correction Model (VECM) Approach in Explaining the Relationship Between Interest Rate and Inflation Towards Exchange Rate Volatility in Malaysia', World Applied Sciences Journal, 12(Special Issue on Bolstering Economic Sustainability), pp. 49-56 [Online]. Available at: www.idosi.org/wasj/wasj12(BES)11/8.pdf (Accessed: 4th November 2012). Fadli Fizari Abu Hassan Asari, Zuraida Mohamad, Teh Sofia Alias, Norazidah Shamsudin, Nurul Syuhada Baharuddin and Kamaruzaman Jusoff (2011) 'Multivariate Time Series Analysis on Correlation between Inflation Rate and Employment Rate with Gross Domestic Product', World Applied Sciences Journal, 12(Special Issue), pp. 61 -66 [Online]. Available at: www.idosi.org/wasj/wasj12(BES)11/10.pdf (Accessed: 20th October 2012). Fahimeh Movahedi Rad (2012) 'The Effects of Money Supply on Economic Growth in Iran', American Journal of Scientific Research, (58), pp. 110-122 [Online]. Available at: www.eurojournals.com/AJSR_58_11.pdf (Accessed: 25th October 2012). Giovanni, J.D and Shambaughz, J.C (June 27, 2007). The Impact of Foreign Interest Rates on the Economy: The Role of the Exchange Rate Regime. [Online]. Available at: www.dartmouth.edu/.../diGiovanniShambaughNov-2005.pdf (Accessed: 20th October 2012).

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Hameed Gul, Khaid Mughal, Sabit Rahim (May 2012) 'Linkage between Monetary Instruments and Economic Growth', Universal Journal of Management and Social Sciences, 2(5), pp. 69 76 [Online]. Available at: http://cprenet.com/uploads/archive/UJMSS_12-1150.pdf (Accessed: 15th October 2012). Irfan Hameed (May 2011) 'Impact of Monetary Policy on Gross Domestic Product (GDP)', Interdisciplinary journal of contemporary research in business, 3(1), pp. 1348-1361 [Online]. Available at: http://www.academia.edu/639117/Impact_of_Monetary_Policy_on_Gross_Domestic_ Product_GDP_ (Accessed: 15th October 2012). Kibritcioglu, A. and Dibooglu, S. (2001) Long Run Economic Growth: An Interdisciplinary Approach. University of Illinois at Urbana-Champaign [Online]. Available at: http://www.business.uiuc.edu/Working_Papers/papers/010121.pdf (Accessed: 19th November 2012). Marcellino, M (April 2007). A comparison of time series models for forecasting GDP growth and inflation. [Online]. Available at: www.eui.eu/Personal/Marcellino/1.pdf (Accessed: 20th October 2012). Moisa Altar (January 2003) Fiscal and Monetary Policies and Economic Growth. [Online]. Available at: http://ssrn.com/abstract=1102581 (Accessed: 17th October 2012). Standard Chartered Bank () Malaysia GDP from 1980 to 2010, Available at: http://www.tradingeconomics.com/malaysia/gdp (Accessed: 26th November 2012). Tahir Mukhtar and Sarwat Rashees. (2010) 'Testing long run relationship between exports and imports: evidence from Pakistan', Journal of economic cooperation and development, 31(1), pp. 41-58 [Online]. Available at: www.sesric.org/jecd/jecd_articles/ART08121502-2.pdf (Accessed: 23th November 2012).

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APPENDIX Data 1: Original Data

Series Name 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 GDP (current LCU) 54,285 58,669 63,726 71,223 81,009 78,890 72,907 81,085 92,370 105,233 119,081 135,123 150,682 172,193 195,460 222,472 253,733 281,795 283,243 300,764 356,401 352,579 383,213 418,769 474,048 522,445 574,441 642,049 742,470 679,938 765,965 M2 (current LCU) Deposit interest rate (%) 6 10 10 8 10 9 7 3 5 6 7 8 7 5 6 7 8 9 4 3 3 3 3 3 3 3 3 3 3 2 3 Inflation, consume r prices (annual %) 7 10 6 4 4 0 1 0 3 3 3 4 5 4 4 3 3 3 5 3 2 1 2 1 2 3 4 2 5 1 2

Data 2: Data In Terms of Logarithm

Year LNGDP LNDEPOSIT LNINFLATION LNM2 1980 10.9020032247 1.79175946923 1.94591014906 24.4841961488 1981 10.9796667573 2.30258509299 2.30258509299 24.665270856 1982 11.0623479215 2.30258509299 1.79175946923 24.8166923588 1983 11.1735710789 2.07944154168 1.38629436112 24.9695543603 1984 11.3023155386 2.30258509299 1.38629436112 25.1204790693 1985 11.2758097561 2.19722457734 1986 11.1969399353 1.94591014906 1987 11.3032532662 1.09861228867 N/A 0 N/A 25.2141020325 25.3361749997 25.3579909417

42,988,400,000 51,521,800,000 59,944,942,857 69,845,700,000 81,224,200,000 89,196,000,000 100,776,900,000 102,999,600,000 111,841,100,000 136,257,600,000 76,660,900,000 89,599,100,000 154,031,700,000 194,638,300,000 217,037,900,000 257,245,200,000 304,796,200,000 353,672,088,820 354,483,971,030 397,372,516,000 437,299,573,000 488,183,360,263 510,073,620,908 554,078,590,009 624,375,109,916 679,277,474,460 771,869,840,064 833,021,504,227 920,783,860,959 992,051,869,993 1,064,945,222,88 7

1988 11.4335575296 1.60943791243 1.09861228867 25.4403449509 1989 11.5639322183 1.79175946923 1.09861228867 25.6378130488 1990 11.6875592128 1.94591014906 1.09861228867 25.062657637 1991 11.8139407537 2.07944154168 1.38629436112 25.2186111122 1992 11.9229269349 1.94591014906 1.60943791243 25.7604242623 1993 12.0563712197 1.60943791243 1.38629436112 25.9944088013 1994 12.1831110339 1.79175946923 1.38629436112 26.1033378296 1995 12.31255653 1.94591014906 1.09861228867 26.2732955526 1996 12.444037812 2.07944154168 1.09861228867 26.4429091935 1997 12.5489351352 2.19722457734 1.09861228867 26.591636018 1998 12.5540604654 1.38629436112 1.60943791243 26.5939289662 1999 12.614081183 1.09861228867 1.09861228867 26.7081400051 2000 12.7838117804 1.09861228867 0.69314718056 26.8038843189 2001 12.7730299896 1.09861228867 2003 12.9450747342 1.09861228867 0 0 26.9139569105 27.0405723729 2002 12.8563462493 1.09861228867 0.69314718056 26.957820907 2004 13.0690638614 1.09861228867 0.69314718056 27.1600171624 2005 13.1662749941 1.09861228867 1.09861228867 27.2442955327 2006 13.261152673 1.09861228867 1.38629436112 27.3720817718 2007 13.3724199037 1.09861228867 0.69314718056 27.4483252942 2008 13.5177377448 1.09861228867 1.60943791243 27.548491167 2009 13.4297568965 0.69314718056 0 27.6230412312 2010 13.5488917558 1.09861228867 0.69314718056 27.6939444799

Data 3: co-integration Test

Date: 10/28/12 Time: 13:07 Sample: 1980 2010 Included observations: 22 Test assumption: Linear deterministic trend in the data Series: LNGDP LNDEPOSIT LNINFLATION LNM2 Lags interval: 1 to 2 Likelihood 5 Percent 1 Percent Ratio Critical Value Critical Value 72.08355 47.21 54.46 31.00404 29.68 35.65 10.13305 15.41 20.04 2.047721 3.76 6.65 *(**) denotes rejection of the hypothesis at 5%(1%) significance level L.R. test indicates 2 cointegrating equation(s) at 5% significance level

Eigenvalue 0.845452 0.612749 0.307547 0.088878

Hypothesized No. of CE(s) None ** At most 1 * At most 2 At most 3

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BWFF3033 FINANCIAL MARKET AND INSTITUTIONS Data 4: Unit Roof Test Trend Level
ADF Test Statistic -1.794903 1% Critical Value* 5% Critical Value 10% Critical Value

Interest First Difference

-3.6752 -2.9665 -2.6220 ADF Test Statistic -4.585405 1% Critical Value* 5% Critical Value 10% Critical Value -3.6852 -2.9705 -2.6242

*MacKinnon critical values for rejection of hypothesis of a unit root.

*MacKinnon critical values for rejection of hypothesis of a unit root.

Augmented Dickey-Fuller Test Equation Dependent Variable: D(LNDEPOSIT) Method: Least Squares Date: 10/11/12 Time: 17:29 Sample(adjusted): 1982 2010 Included observations: 29 after adjusting endpoints Variable LNDEPOSIT(-1) D(LNDEPOSIT(-1)) C R-squared Adjusted R-squared S.E. of regression Sum squared resid Log likelihood Durbin-Watson stat Coefficient -0.208054 0.058167 0.291976 0.113194 0.044978 0.290045 2.187285 -3.672016 2.060351 Std. Error 0.115914 0.185480 0.194189 t-Statistic -1.794903 0.313603 1.503566 Prob. 0.0843 0.7563 0.1447 -0.041516 0.296797 0.460139 0.601583 1.659352 0.209784

Augmented Dickey-Fuller Test Equation Dependent Variable: D(LNDEPOSIT,2) Method: Least Squares Date: 10/11/12 Time: 17:32 Sample(adjusted): 1983 2010 Included observations: 28 after adjusting endpoints Variable D(LNDEPOSIT(-1)) D(LNDEPOSIT(-1),2) C R-squared Adjusted R-squared S.E. of regression Sum squared resid Log likelihood Durbin-Watson stat Coefficient -1.294712 0.210105 -0.054881 0.556526 0.521048 0.305915 2.339595 -4.979106 2.084868 Std. Error 0.282355 0.191258 0.058971 t-Statistic -4.585405 1.098545 -0.930643 Prob. 0.0001 0.2824 0.3609 1.98E-17 0.442032 0.569936 0.712672 15.68652 0.000039

Mean dependent var S.D. dependent var Akaike info criterion Schwarz criterion F-statistic Prob(F-statistic)

Mean dependent var S.D. dependent var Akaike info criterion Schwarz criterion F-statistic Prob(F-statistic)

Level
ADF Test Statistic -0.275231 1% Critical Value* 5% Critical Value 10% Critical Value *MacKinnon critical values for rejection of hypothesis of a unit root.

GDP First Difference

-3.6752 -2.9665 -2.6220

ADF Test Statistic

-4.013205

1% Critical Value* 5% Critical Value 10% Critical Value

-3.6852 -2.9705 -2.6242

*MacKinnon critical values for rejection of hypothesis of a unit root.

Augmented Dickey-Fuller Test Equation Dependent Variable: D(LNGDP) Method: Least Squares Date: 10/10/12 Time: 17:48 Sample(adjusted): 1982 2010 Included observations: 29 after adjusting endpoints Variable LNGDP(-1) D(LNGDP(-1)) C R-squared Adjusted R-squared S.E. of regression Sum squared resid Log likelihood Durbin-Watson stat Coefficient -0.004338 0.023755 0.139565 0.003441 -0.073217 0.067548 0.118632 38.58662 1.981862 Std. Error 0.015761 0.196507 0.193731 t-Statistic -0.275231 0.120886 0.720404 Prob. 0.7853 0.9047 0.4777 0.088594 0.065203 -2.454250 -2.312805 0.044894 0.956173

Augmented Dickey-Fuller Test Equation Dependent Variable: D(LNGDP,2) Method: Least Squares Date: 10/10/12 Time: 17:52 Sample(adjusted): 1983 2010 Included observations: 28 after adjusting endpoints Variable D(LNGDP(-1)) D(LNGDP(-1),2) C R-squared Adjusted R-squared S.E. of regression Sum squared resid Log likelihood Durbin-Watson stat Coefficient -1.172826 0.210406 0.105173 0.503034 0.463276 0.067866 0.115145 37.18245 1.968340 Std. Error 0.292242 0.231670 0.029529 t-Statistic -4.013205 0.908215 3.561663 Prob. 0.0005 0.3724 0.0015 0.001302 0.092635 -2.441604 -2.298868 12.65260 0.000160

Mean dependent var S.D. dependent var Akaike info criterion Schwarz criterion F-statistic Prob(F-statistic)

Mean dependent var S.D. dependent var Akaike info criterion Schwarz criterion F-statistic Prob(F-statistic)

Level
ADF Test Statistic -2.131528 1% Critical Value* 5% Critical Value 10% Critical Value

Inflation First Difference

-3.7343 -2.9907 -2.6348 ADF Test Statistic -2.972549 1% Critical Value* 5% Critical Value 10% Critical Value -3.7667 -3.0038 -2.6417

*MacKinnon critical values for rejection of hypothesis of a unit root.

*MacKinnon critical values for rejection of hypothesis of a unit root.

Augmented Dickey-Fuller Test Equation Dependent Variable: D(LNCPIINFLASI) Method: Least Squares Date: 10/11/12 Time: 17:46 Sample(adjusted): 1982 2010 Included observations: 24 Excluded observations: 5 after adjusting endpoints Variable LNCPIINFLASI(-1) D(LNCPIINFLASI(-1)) C R-squared Adjusted R-squared S.E. of regression Sum squared resid Log likelihood Coefficient -0.430333 -0.340092 0.393308 0.435884 0.382159 0.459609 4.436043 -13.79503 Std. Error 0.201890 0.201027 0.247736 t-Statistic -2.131528 -1.691774 1.587610 Prob. 0.0450 0.1055 0.1273 -0.055073 0.584722 1.399586 1.546843 8.113195

Augmented Dickey-Fuller Test Equation Dependent Variable: D(LNCPIINFLASI,2) Method: Least Squares Date: 10/11/12 Time: 17:47 Sample(adjusted): 1983 2010 Included observations: 22 Excluded observations: 6 after adjusting endpoints Variable D(LNCPIINFLASI(-1)) D(LNCPIINFLASI(1),2) C R-squared Adjusted R-squared S.E. of regression Sum squared resid Coefficient -1.311281 -0.177287 -0.084481 0.773671 0.749847 0.524624 5.229379 Std. Error 0.441130 0.278820 0.113430 t-Statistic -2.972549 -0.635850 -0.744783 Prob. 0.0078 0.5325 0.4655 0.054726 1.048927 1.673854 1.822633

Mean dependent var S.D. dependent var Akaike info criterion Schwarz criterion F-statistic

Mean dependent var S.D. dependent var Akaike info criterion Schwarz criterion

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BWFF3033 FINANCIAL MARKET AND INSTITUTIONS

Durbin-Watson stat 1.976687 Prob(F-statistic) 0.002451 Log likelihood Durbin-Watson stat -15.41240 1.990799 F-statistic Prob(F-statistic) 32.47426 0.000001

Level
ADF Test Statistic -0.662644 1% Critical Value* 5% Critical Value 10% Critical Value

Money Supply M2 First Difference

-3.6752 -2.9665 -2.6220 ADF Test Statistic -5.219095 1% Critical Value* 5% Critical Value 10% Critical Value -3.6852 -2.9705 -2.6242

*MacKinnon critical values for rejection of hypothesis of a unit root.

*MacKinnon critical values for rejection of hypothesis of a unit root.

Augmented Dickey-Fuller Test Equation Dependent Variable: D(LNM2) Method: Least Squares Date: 10/11/12 Time: 17:12 Sample(adjusted): 1982 2010 Included observations: 29 after adjusting endpoints Variable LNM2(-1) D(LNM2(-1)) C R-squared Adjusted R-squared S.E. of regression Sum squared resid Log likelihood Durbin-Watson stat Coefficient -0.022248 -0.010786 0.688211 0.016811 -0.058819 0.165577 0.712809 12.58544 2.009048 Std. Error 0.033575 0.193956 0.879425 t-Statistic -0.662644 -0.055611 0.782570 Prob. 0.5134 0.9561 0.4409 0.104437 0.160912 -0.661065 -0.519620 0.222280 0.802197

Augmented Dickey-Fuller Test Equation Dependent Variable: D(LNM2,2) Method: Least Squares Date: 10/11/12 Time: 17:14 Sample(adjusted): 1983 2010 Included observations: 28 after adjusting endpoints Variable D(LNM2(-1)) D(LNM2(-1),2) C R-squared Adjusted Rsquared S.E. of regression Sum squared resid Log likelihood Durbin-Watson stat Coefficient -1.384520 0.359414 0.144745 0.573830 0.539736 0.158544 0.628402 13.42463 1.966512 Std. Error 0.265280 0.185820 0.041373 t-Statistic -5.219095 1.934200 3.498574 Prob. 0.0000 0.0645 0.0018 -0.002876 0.233693 -0.744617 -0.601880 16.83100 0.000023

Mean dependent var S.D. dependent var Akaike info criterion Schwarz criterion F-statistic Prob(F-statistic)

Mean dependent var S.D. dependent var Akaike info criterion Schwarz criterion F-statistic Prob(F-statistic)

Data 5: Unit Roof Test Trend and intercept Interest First Difference
-3.233263 1% Critical Value* 5% Critical Value 10% Critical Value -4.3082 -3.5731 -3.2203 ADF Test Statistic -4.449267 1% Critical Value* 5% Critical Value 10% Critical Value -4.3226 -3.5796 -3.2239

Level
ADF Test Statistic

*MacKinnon critical values for rejection of hypothesis of a unit root.

*MacKinnon critical values for rejection of hypothesis of a unit root.

Augmented Dickey-Fuller Test Equation Dependent Variable: D(LNDEPOSIT) Method: Least Squares Date: 10/21/12 Time: 14:29 Sample(adjusted): 1982 2010 Included observations: 29 after adjusting endpoints Variable LNDEPOSIT(-1) D(LNDEPOSIT(-1)) C @TREND(1980) R-squared Adjusted R-squared S.E. of regression Sum squared resid Log likelihood Durbin-Watson stat Coefficient -0.634077 0.237344 1.420157 -0.027534 0.299194 0.215097 0.262947 1.728522 -0.258794 1.976644 Std. Error 0.196111 0.189445 0.472038 0.010739 t-Statistic -3.233263 1.252838 3.008564 -2.563823 Prob. 0.0034 0.2219 0.0059 0.0167 -0.041516 0.296797 0.293710 0.482302 3.557733 0.028533

Augmented Dickey-Fuller Test Equation Dependent Variable: D(LNDEPOSIT,2) Method: Least Squares Date: 10/21/12 Time: 14:26 Sample(adjusted): 1983 2010 Included observations: 28 after adjusting endpoints Variable D(LNDEPOSIT(-1)) D(LNDEPOSIT(-1),2) C @TREND(1980) R-squared Adjusted R-squared S.E. of regression Sum squared resid Log likelihood Durbin-Watson stat Coefficient -1.287435 0.205383 -0.078730 0.001572 0.542043 0.484798 0.312118 2.338021 -4.969686 2.012424 Std. Error 0.289359 0.200845 0.134402 0.007334 t-Statistic -4.449267 1.022596 -0.585785 0.214279 Prob. 0.0002 0.3167 0.5635 0.8321 0.014481 0.434841 0.640692 0.831007 9.468889 0.000260

Mean dependent var S.D. dependent var Akaike info criterion Schwarz criterion F-statistic Prob(F-statistic)

Mean dependent var S.D. dependent var Akaike info criterion Schwarz criterion F-statistic Prob(F-statistic)

Level
ADF Test Statistic -2.373107 1% Critical Value* 5% Critical Value 10% Critical Value

GDP First Difference

-4.3082 -3.5731 -3.2203 ADF Test Statistic -3.920186 1% Critical Value* 5% Critical Value 10% Critical Value -4.3226 -3.5796 -3.2239

*MacKinnon critical values for rejection of hypothesis of a unit root.

*MacKinnon critical values for rejection of hypothesis of a unit root.

Augmented Dickey-Fuller Test Equation Dependent Variable: D(LNGDP) Method: Least Squares Date: 10/21/12 Time: 14:03 Sample(adjusted): 1982 2010 Included observations: 29 after adjusting endpoints Variable LNGDP(-1) D(LNGDP(-1)) Coefficient -0.366898 0.218741 Std. Error 0.154607 0.199294 t-Statistic -2.373107 1.097579 Prob. 0.0256 0.2828

Augmented Dickey-Fuller Test Equation Dependent Variable: D(LNGDP,2) Method: Least Squares Date: 10/21/12 Time: 14:17 Sample(adjusted): 1983 2010 Included observations: 28 after adjusting endpoints Variable D(LNGDP(-1)) D(LNGDP(-1),2) Coefficient -1.174122 0.212273 Std. Error 0.299507 0.239700 t-Statistic -3.920186 0.885579 Prob. 0.0006 0.3846

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BWFF3033 FINANCIAL MARKET AND INSTITUTIONS

C @TREND(1980) R-squared Adjusted R-squared S.E. of regression Sum squared resid Log likelihood Durbin-Watson stat 4.001250 0.034662 0.184441 0.086574 0.062317 0.097086 41.49292 1.991292 1.649154 0.014716 2.426244 2.355490 0.0228 0.0267 0.088594 0.065203 -2.585718 -2.397126 1.884609 0.158023 C @TREND(1980) R-squared Adjusted R-squared S.E. of regression Sum squared resid Log likelihood Durbin-Watson stat 0.104012 7.79E-05 0.503080 0.440965 0.069262 0.115134 37.18376 1.969126 0.038843 0.001644 2.677757 0.047362 0.0132 0.9626 0.001302 0.092635 -2.370269 -2.179954 8.099170 0.000672

Mean dependent var S.D. dependent var Akaike info criterion Schwarz criterion F-statistic Prob(F-statistic)

Mean dependent var S.D. dependent var Akaike info criterion Schwarz criterion F-statistic Prob(F-statistic)

Level
ADF Test Statistic -2.600832 1% Critical Value* 5% Critical Value 10% Critical Value

Inflation First Difference

-4.3942 -3.6118 -3.2418 ADF Test Statistic -2.895983 1% Critical Value* 5% Critical Value 10% Critical Value -4.4415 -3.6330 -3.2535

*MacKinnon critical values for rejection of hypothesis of a unit root.

*MacKinnon critical values for rejection of hypothesis of a unit root.

Augmented Dickey-Fuller Test Equation Dependent Variable: D(LNINFLATION) Method: Least Squares Date: 10/21/12 Time: 14:36 Sample(adjusted): 1982 2010 Included observations: 24 Excluded observations: 5 after adjusting endpoints Variable LNINFLATION(-1) D(LNINFLATION(-1)) C @TREND(1980) R-squared Adjusted R-squared S.E. of regression Sum squared resid Log likelihood Durbin-Watson stat Coefficient -0.723571 -0.195051 1.155703 -0.024102 0.492073 0.415884 0.446889 3.994187 -12.53596 1.967914 Std. Error 0.278208 0.218435 0.566334 0.016204 t-Statistic -2.600832 -0.892947 2.040674 -1.487445 Prob. 0.0171 0.3825 0.0547 0.1525 -0.055073 0.584722 1.377997 1.574339 6.458586 0.003100

Augmented Dickey-Fuller Test Equation Dependent Variable: D(LNINFLATION,2) Method: Least Squares Date: 10/21/12 Time: 14:38 Sample(adjusted): 1983 2010 Included observations: 22 Excluded observations: 6 after adjusting endpoints Variable D(LNINFLATION(-1)) D(LNINFLATION(1),2) C @TREND(1980) R-squared Adjusted R-squared S.E. of regression Sum squared resid Log likelihood Durbin-Watson stat Coefficient -1.328117 -0.166548 -0.152930 0.003591 0.774317 0.736703 0.538230 5.214448 -15.38095 1.988329 Std. Error 0.458607 0.289935 0.323185 0.015818 t-Statistic -2.895983 -0.574433 -0.473197 0.227025 Prob. 0.0096 0.5728 0.6418 0.8230 0.054726 1.048927 1.761904 1.960276 20.58597 0.000005

Mean dependent var S.D. dependent var Akaike info criterion Schwarz criterion F-statistic Prob(F-statistic)

Mean dependent var S.D. dependent var Akaike info criterion Schwarz criterion F-statistic Prob(F-statistic)

Level
ADF Test Statistic -3.074261 1% Critical Value* 5% Critical Value 10% Critical Value

Money Supply M2 First Difference

-4.3082 -3.5731 -3.2203 ADF Test Statistic -5.126128 1% Critical Value* 5% Critical Value 10% Critical Value -4.3226 -3.5796 -3.2239

*MacKinnon critical values for rejection of hypothesis of a unit root.

*MacKinnon critical values for rejection of hypothesis of a unit root.

Augmented Dickey-Fuller Test Equation Dependent Variable: D(LNM2) Method: Least Squares Date: 10/21/12 Time: 14:16 Sample(adjusted): 1982 2010 Included observations: 29 after adjusting endpoints Variable LNM2(-1) D(LNM2(-1)) C @TREND(1980) R-squared Adjusted R-squared S.E. of regression Sum squared resid Log likelihood Durbin-Watson stat Coefficient -0.565813 0.265856 13.92651 0.060377 0.276014 0.189136 0.144898 0.524887 17.02286 1.931825 Std. Error 0.184048 0.193287 4.491364 0.020181 t-Statistic -3.074261 1.375448 3.100730 2.991748 Prob. 0.0050 0.1812 0.0047 0.0062 0.104437 0.160912 -0.898128 -0.709536 3.177019 0.041507

Augmented Dickey-Fuller Test Equation Dependent Variable: D(LNM2,2) Method: Least Squares Date: 10/21/12 Time: 14:21 Sample(adjusted): 1983 2010 Included observations: 28 after adjusting endpoints Variable D(LNM2(-1)) D(LNM2(-1),2) C @TREND(1980) R-squared Adjusted R-squared S.E. of regression Sum squared resid Log likelihood Durbin-Watson stat Coefficient -1.388561 0.361793 0.160821 -0.000948 0.574939 0.521806 0.161602 0.626767 13.46112 1.967771 Std. Error 0.270879 0.189644 0.076844 0.003788 t-Statistic -5.126128 1.907753 2.092819 -0.250255 Prob. 0.0000 0.0685 0.0471 0.8045 -0.002876 0.233693 -0.675794 -0.485479 10.82082 0.000109

Mean dependent var S.D. dependent var Akaike info criterion Schwarz criterion F-statistic Prob(F-statistic)

Mean dependent var S.D. dependent var Akaike info criterion Schwarz criterion F-statistic Prob(F-statistic)

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