The impacts of monetary policy on consumption and investment: empirical evidence from selected countries in Southeast Asia

Zukarnain Zakaria


This paper investigates the effectiveness of monetary policy in four major countries in Southeast Asia by using impulse-response functions within a vector error correction model (VECM) framework. The impacts of interest rate shock on two macroeconomic variables, investment and consumption have been analysed and compared based on the magnitude and the speed of adjustment. The findings show that the effectiveness of monetary policy differs not only between countries but also on the macroeconomics variable used in the analysis. Monetary policy was found more effective in influencing investment in the Philippines compared with Malaysia and Thailand, and the impacts are smallest in Indonesia. For consumption, the impacts are stronger in Thailand and smallest in the Philippines. The impacts of monetary policy on consumption are also less responsive compared with it impacts on investment.


JEL classification: E52, E21, E22


monetary policy; consumption; investment; impulse response

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