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The Impact of Macroeconomic Variables on GDP: Empirical Evidence from Malaysia BPTMS 28 September 2017 Abstract The study was to examine the relationship between the independent variables of inflation, unemployment, and interest rate with the economic growth (GDP) in Malaysia during the period of first quarter 2001 to fourth quarter 2016. Autoregressive distributed lag (ARDL)-bounds testing approach by Pesaran et al. [2001] was used to examine the linkages. The results of the bounds test show that there is a stable long-run relationship between the independent variables and economic growth at ARDL(2,3,3,0). In the short- run, the relationship of inflation was negative with GDP while interest rate was positively linked with GDP growth. However, in the short run, the relationship was insignificant with unemployment. Schematic view of the short- and medium-run macro model Relationship: GDP, inflation and unemployment • Economy is healthy (GDP ) unemployment wage • Businesses demand labour to meet the growing economy. • GDP Employment unemployment rate • However, if the GDP growth rate is speeding up too fast, the Central Bank may raise interest rates to stem inflation—or the rising of prices for good and services. • The rise in interest rate put pressure on aggregate demand, investment demand for labour decreases forcing employment to equal equilibrium.
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