Page 249 - Contributed Paper Session (CPS) - Volume 7

CPS2075 Wan Siti Zaleha W. Z. et al.
Table 3.3.1: Results of Granger Causality Tests
Null Hypothesis F-Statistic Prob. Decision Causality
Imports does not 17.0241 0.1487 Do Not Reject No
Granger Cause CPI H0
CPI does not 25.6096 0.0122 Reject H0 Yes
Granger Cause
Imports
Exports does not 23.7083 0.0223 Reject H0 Yes
Granger Cause CPI
CPI does not 17.3147 0.1381 Do Not Reject No
Granger Cause H0
Exports
Following the results in Table 3.3.1, the null hypothesis for CPI does not
granger cause imports (p‐value at 0.0122) and exports does not granger
cause CPI (p‐value at 0.0223) is rejected at 5 per cent significance level.
However, the the null hypothesis for imports does not granger cause CPI
and CPI does not granger cause exports failed to be rejected at 5 per cent
significant level. Thus, conforming a uni‐directional causality running from
CPI to imports, supporting the results from Dewan Muktadir‐Al‐Mukit
(2013). Besides that, a uni‐directional causality also run from exports to
CPI.

4. Discussion and Conclusion
The main purpose of this study was to discover whether imports and
exports have an impact on inflation in Malaysia The study employed the
following econometrics techniques which are the unit root test for testing the
stationarity in variables; the co-integration test to examine for the long-run
relationship between variables; and causality test to identify short-run
relationship between the pairs of variables. These techniques were employed
on monthly Malaysia’s CPI and imports and exports of goods data for the
period between January 1990 and December 2017. Based on the findings, it
can be concluded that the long-run relationship does not exist between CPI &
imports and CPI & exports. However, there is short term linkage relationship
between CPI & imports and CPI & exports. Based on the Granger causality test,
the CPI had caused the increase in imports and the exports had caused the
increase in CPI.
Result from Granger causality analysis indicates the existence of
unidirectional causality running from CPI to imports which points out that CPI
lead imports condition for the Malaysia economy. Based on the cost-push
theory of inflation, the result suggests that Malaysia’s inflation more
attributable to domestic supply which subsequently, influences imports. On
the other hand, the result also shows the existence of unidirectional causality
running from CPI to exports which points out that exports lead CPI condition

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