THE INFLUENCE OF OIL PRICES ON INDONESIA’S EXCHANGE RATE

  • Seema Wati Narayan
  • Telisa Falianty Faculty of Economics and Business, Universitas Indonesia
  • Lutzardo Tobing Bank Indonesia
Keywords: exchange rate, oil price, exchange rate regimes, Indonesia

Abstract

This study tests for a long-run relation between oil prices and the rupiah–US dollarexchange rate. We discover, first, that the long-run cointegration relation between oilprices and the real exchange rate (RER) is sensitive to different exchange rate regimesin Indonesia. Second, we find a long-run cointegrating relation between oil prices andthe RER over the float exchange rate regime. However, in the managed float period,there is no evidence of a long-run relation between oil prices and the RER. In the longrun, higher oil prices lead to an appreciation of the rupiah against the US dollar in thefloat period (post-August 1997 period). We demonstrate that these results are robust todifferent data frequencies.

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Published
2019-02-28
Section
Articles