Macroeconomic Determinants of Malaysia’s Exchange Rate: A Multiple Linear Regression Analysis

Abstract

This study uses Multiple Linear Regression (MLR) to examine how important macroeconomic factors affect Malaysia's exchange rate. The analysis covered annual data from 1990 to 2023 and focused on five main indicators—GDP at constant prices, GDP growth rate, interest rate, inflation rate, and unemployment rate. On average, the exchange rate stood at 3.50 MYR/USD, showing moderate fluctuation, while GDP at constant prices recorded an average of 25,144.60 million MYR with wider variation, reflecting the country’s economic expansion. The correlation results indicate that the exchange rate moves closely with GDP at constant prices (r = 0.801) but inversely with both interest rate (r = –0.762) and GDP growth rate (r = –0.757). Regression analysis further confirms that GDP at constant prices exerts a strong positive influence on the exchange rate (β = 0.475, p < 0.001), whereas GDP growth rate has a significant negative effect (β = –0.327, p = 0.022). The overall model explains about 76 percent of the variation in the exchange rate (Adjusted R² = 0.757) and shows no sign of serial correlation (Durbin–Watson = 1.882). These findings underscore the dominant role of structural output and growth dynamics in influencing Malaysia’s exchange rate, allowing policymakers to sustain long-term economic stability and manage volatility arising from rapid short-term growth