INFLATION AND PRIVATE EXPENDITURE IN MALAYSIA: A THRESHOLD REGRESSION APPROACH
Muhammad Harunurashid bin Thelatha
DOI:
Keywords:
Inflation rate, private expenditure, threshold model, structural break, Malaysia
Abstract
The present study endeavours to revisit the existence of threshold effects in the interrelation between inflation rate and private expenditure. The empirical investigation utilises yearly data of Malaysia spanning the time frame commencing in 1992 – 2022. This study addresses the specific research question of determining the threshold inflation rate for Malaysia. The results indicate the presence of a threshold value, which serves as a structural break point and suggests a non-linear relationship between inflation and private expenditure. According to the model, an inflation rate of 3.9% represents the threshold value beyond which a noteworthy negative impact on the growth rate of private expenditure is observed. Furthermore, it should be noted that there exists a statistically significant, affirmative relationship between the growth of private expenditure and inflation when such outlays are below the threshold level. Nonetheless, a crucial means of offsetting this phenomenon is frequently overlooked; namely, enhancing productivity. This approach exerts a downward force on prices and consequently fosters sustainable demand across numerous segments of the economy.
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