This empirical analysis intends to examine the asymmetric response of economic growth when the oil price changes in Malaysia by applying threshold autoregressive (TAR) and momentum threshold autoregressive (MTAR) cointegration and asymmetric adjustment models. The results revealed that the oil price has an asymmetric impact on Malaysian economic growth. We found that when oil price increases this accelerates economic growth; however, the speeds of adjustment back to the steady position were insignificant. When the oil price dropped, oil price significantly and negatively affects economic growth for a period of time and then returns back to its normal position. The results revealed that Malaysian economic growth constantly benefits when the oil price increases and is temporarily negatively affected when oil prices drop. The results have important policy implications. This suggests that it is essential to the policy makers to consider different policy responses for hikes and drops in oil prices. The result implies that negative oil price shock would lower economic growth, however it is temporary. Therefore, policy makers might response by implementing expansionary monetary policy to stimulate economic growth. The explanation is intuitive. For example, an increase in the money supply would normally pull down the interest rate which would further encourage consumption and investment, stimulate economic growth, which would increase oil demand and push up its price.

We study the effects of monetary and fiscal policies when both money and government bonds provide liquidity services. Because money is the unit of account, the price of money is the inverse of the price level. If prices are sticky, so is the price of money in terms of goods, and this is one important reason why money is liquid and attractive. By contrast, the price of government bonds is free to jump and often does, especially in response to news about changes in fiscal policy and the supply of bonds. Those movements in government bond prices affect available liquidity, and therefore aggregate demand, inflation, and output. Under these conditions, bond‐financed fiscal expansions can be contractionary, causing deflation and a temporary recession. To avoid those effects, changes in bond supply must be matched by changes in money supply and in the interest rate on money. We conclude that in a liquidity‐dependent world, fiscal and monetary policies are joined at the hip .

This paper is an attempt to determine the presence and empirical significance of monetary policy and the bank lending view of the credit channel for Mauritius, which is particularly relevant at these times. A vector autoregressive (VAR) model of order three is used to examine the monetary transmission mechanism using quarterly data from 1985Q1 to 2006Q4. The variables Gross Domestic Product (GDP), price level, money supply and credit to private sector are considered. The results of econometric analysisshow the effectiveness and relevance of monetary policy and of a credit channel in the short-run. Changes in the monetary policy variable (M2) affect the credit variable (CPS) in the short-run. Output (GDP) increases temporarily, while the effect of a monetary stimulus on prices is a persistent increase.Keywords: Monetary Transmission Mechanism, Credit Channel, VARmodel.