Business Cycle and The Macroeconomics Performance: Evidence of Malaysia and Indonesia

Abdul Qoyum, M. Miftahussurur, Al-Amin Matae, Muhammad Yousuf, A. Abdurrahman


Stable economic growth is the major macroeconomic goal which is all nations seek. Economist and policy makers have been tried to find the ways to sustain and maintain stable economic growth. This paper examines the macroeconomic fluctuations and economic growth in Malaysia and Indonesia and its determinant by using multiple regression models. Five variables were chosen for the model namely variables are Money supply (MS), Industrial production (IP), Interest rate (IR), exchange rate (ER), Consumer price Index (CPI) and stock prices. The study shows that Money supply (MS), Interest rate (IR), exchange rate (ER), and stock prices are among others, the determinant factors of macroeconomic fluctuations in both countries. Specifically, the empirical results reveal that Interest rate (IR), exchange rate (ER), and stock prices has significant contribution to the performance of real GDP in Malaysia while Money supply (MS) and exchange rate (ER) are the main cause of macroeconomic fluctuations in Indonesia. This may be due to the different monetary policies pursued by the two countries. The two countries might have different monetary policy strategies; Malaysia pursues interest rate targeting policy, whereas Indonesia applies inflation rate targeting policy.The study recommends for both countries government policies play an important role in economic performance. Therefore, a careful policy should be the foremost important factor for economic in these nations and the every country in general.


Economics Growth; Macroeconomic Policy; Business Cycle

Full Text:



Akin Cigdem (2006), Multiple Determinants Of Business Cycle Synchronization, Working Paper Of George Washington University, Department Of Economics.

Allen, Stuart D., and Robert A. Connolly (1956), Financial Market Effects on Aggregate Moneyand Statistics.

Anderson, Richard G., (2002) The Effect of Mortgage Refinancing on Money Demand and Monetary.

Antonio Fatas (2002), The Effects Of Business Cycle On Growth, Working Paper Of Central Bank Of Chile.

Antonio FatasAndIlianMahov (2006), The Macroeconomic Effects Of Fiscal Rules In The Us States, Journal Of Public Economics.

Apergis, N., &Eleftheriou, S. (2002). Interest rates, inflation, and stock prices: the case of the Athens Stock Exchange. Journal of Policy Modeling,

Asprem, M. (1989).Stock Prices, Asset Portfolios and Macroeconomic Variables in Ten European Countries.Journal of Banking and Finance Bank of Dallas, (July 2003).

BintiAzman, Katrina And Binti Mohamed Suhana (2011), Malaysian Sectoral Indices Vs Macroeconomic Factors, Any Correlation?: Evidence From Malaysia, International Conference On Economics And Finance Research, Singapore.

Boudoukh, J. and M. Richardson (1993). Stock returns and in inflation: A long horizon perspective," American Economic Review,

Brunner, Karl and Allan H. Meltzer, (2000) Economies of Scale in Cash Balances Reconsidered, Quarterly Journal of Economics 81

Bulmash, S. B. and G. W. Trivoli.(1991). Time-lagges Interactions between Stock Prices and Selected Economic Variables.The Journal of Portfolio Management .

Campbell, J. Y. and J. Ammer (1993). What moves the stock and bond markets? A variance decomposition for long-term asset returns. Journal of Finance.

Chen, N, R. Roll, and S. Ross.(1986). Economic forces and the stock market.Journal of Business and Finance.

Cheng, Ming-Yu, (2003. Economic Fluctuations And Gwowth: An Empirical Study Of The Malaysian Economcy, The Jourmal Of Business In Developing Nations

Chew Joey, Ouliaris Sam And Siang Tan Siang Meng (2011) Exchange Rate Pass-Through Over The Business Cycle In Singapore, IMF working Paper.

Choudry, T. (2001). Inflation and Rates of Return on Stocks: Evidence from High Inflation Countries. Journal of International Financial Markets, Institutions and Money,

Chow Hwee Kwan And Choy Keen Meng (2000), Forecasting Business Cycles In A Small Open Economy: A Dynamic Factor Model For Singapore

Chow Kwee Kwan (2009), Analyzing And Forecasting Business Cycles In A Small Open Economy: A Dynamic Factor Model For Singapore, Working Paper Of School Of Economics In Singapore.

Christopher Bajada (2007), The Effects Of Inflation And The Business Cycle On Revisions Of Macroeconomic Data, Working Paper Of University Of Technology, Sydney.

Dennis L. Hoffman, Benjamin D. Keen, and Robert H. Rasche (2000). Results of a Study of the Stability of Cointegrating Relations Comprised of Broad Monetary Aggregates, Journal of Monetary Economics.

Dow, James P., Jr, and Douglas W. Elmendorf, (2004) The Effect of Stock Prices on the Demand for money Market Mutual Funds, Board of Governors of the Federal Reserve System.

Duca, John V., (2003) Stock Market Shocks and Broad Money Demand, manuscript, Federal Reserve

Effects Of U.S. Business Cycles On The Canadian Economy, (2005) Journal Of International Economics. Equity?Review of Income and Wealth

Fama, E. F. (1981). Stock Returns, Real Activity, Inflation, and Money. American Economic Review.

Fama, E. F. and G. W. Schwert (1977) Asset returns and inflation, Journal of Financial Economics,

Fama, E. F. and M. R Gibbons.(1982). Inflation, Real Returns and Capital Investment.Journal of Monetary Economics,

Fama, E.F. (1990). Stock Returns, Expected returns, and Real Activity. Journal of Finance,

Fama, Eugene and Kenneth French, Disappearing Dividends: Changing Firm Characteristics or Family Finances: Results from the 1998 Survey of Consumer Finances, Federal Reserve

Froyen, T.R and Low, L. (2001). Macroeconomics: an Asian perspective. Prentice Hall: Person education SiaPte Ltd, Singapore

Friedman, Milton, (2002) Money and the Stock Market, Journal of Political Economy 96 (April 1988),

Ibrahim, M. H. and Wan Yusuf, W.S. (2001). Macroeconomic Variables, Exchange Rate and Stock Price: A Malaysian Perspective IIUM Journal of Economics and Management 9, no. 2: 141-63

Ibrahim, M.H. (1999). Macroeconomic Variables and Stock Prices in Malaysia: An Empirical Analysis. Asian Economic Journal.

Implications for Money Demand and Monetary Policy, NBER Working (March 1996).Journal of Economics and Business, (forthcoming).

Kassim, H.S. and Abdulmanap, T. A. (2007). Sources of Macroeconomic Fluctuation in Malaysia: an empirical test of the Keynesian model. Asia Pacific Journal of Economics and Business, Vol.11 No. 2

King, R.G. and M.W. Watson (1997).Testing Long run Neutrality.Federal Reserve Bank of Richmond Economic Quarterly

Kose M. Ayhan (2008). Global Business Cycles: Convergence Or Decoupling, IMF Working Paper.

Maysami, R. C. &Koh, T. S. (2000). A Vector Error CorrectionModel of the Singapore Stock Market.International Review of Economics and Finance

McCallum, Bennett T. (2001), Monetary Policy Analysis in Models without Money, Federal

Mckinnon Ronald And Schnable Gunther (2003), Synchronized Business Cycles In East Asia And Fluctuations In The Yen/Dollar Exchange Rate, Stanford University Press.

Mishkin.F.S., (2007), the Economics of Money, Banking, and Financial Market, Columbia University, London.

Modigliani, Franco, and Richard Cohn, (1979).Inflation, rational valuation and the market.Financial Analysts Journal

Monetary Aggregate in the Long Run?American Economic Review 81 (September 1991), Money, Credit, and Banking 32 (November 2000),

Mookerjee, R (1987). Monetary Policy and the InformationalEfficiency of the Stock Market: The Evidence from Many Countries. Applied Economics

Nelson, Edward (2003), The Future of Monetary Aggregates in Monetary Policy Analysis,

of Naive Expectations Hypotheses, Journal of Financial Economics

Omran, M, and Pointon, J. (2001). Does the Inflation Rate Affect the Performance of the Stock Market: The Case of Egypt.EmergingMarkets Review

Omran, M. M. (2003). Time Series Analysis of the Impact of Real interest rates on Stock Market Activity and Liquidity in Egypt: Cointegration and Error Correction Model Approach. International Journal of Business Operations Research 15 (November 1990),.

Rapach, D. E. (2002).The Long-run Relationship between Inflation and Real Stock Prices.Journal of Macroeconomics

Rea, John D. and Brian K. Reid, (1999)Total Shareholder Cost of Bond and Money Market Mutual Funds, Investment Company Institute Perspective

Rea, John D. and Brian K. Reid, Trends in the Ownership Cost of Equity Mutual Funds, Investment Company Institute Perspective 4 (November 1998),

Schwert, G. W. (1981) .The adjustment of stock prices to information about inflation.Journal of Finance

Stephen Schmit (1998), The International Transmission Of Economic Fluctuations:

Studies in the Quantity Theory of Money. Chicago: University of Chicago Press, 1956.

The Economic Journal, Time, FRB Kansas City Working Paper 2004-08, (September) Cuthbertson, Keith (1985), The Supply and Demand for Money (Blackwell) (1997),

Watson W. Mark And Stock H. James (1998), Business Cycle Fluctuations In U.S Macroeconomic Time Series, NBER Working Paper Series. with a Changing Equilibrium Velocity, Journal of Economics and Business, (February

Zordan, D. J. (2005). Stock Prices, Interest Rates, Investment Survival. Econometrica USA, Illinois. Article in a journal



  • There are currently no refbacks.

Copyright (c) 2014 Abdul Qoyum, M. Miftahussurur, Al-Amin Matae, Muhammad Yousuf, A. Abdurrahman


Global Review of Islamic Economics and Business

ISSN: 2338-2619 (p); 2338-7920 (e)

Published by:
Faculty of Islamic Economics and Business
State Islamic University (UIN) Sunan Kalijaga

In cooperation with:
Consortium for Islamic Economics

Creative Commons License
All publications by Global Review of Islamic
Economics and Business are licensed under a 
Creative Commons Attribution-ShareAlike 4.0
International License


Indexed by: 

SINTAGarudaGoogle ScholarNelitiMorarefIndonesia One SearchOCLC WorldCatBase