INFORMATION FLOW BETWEEN THE US DOLLAR-RUPIAH EXCHANGE RATES

  • Wee-Yeap Lau University of Malaya
  • Tien-Ming Yip University of Malaya
Keywords: Spot, Forward, Non-deliverable forward, Quantitative easing, Rupiah, Exchange rates

Abstract

This study investigates the information flow between non-deliverable forward (NDF), spot, and forward US dollar–rupiah exchange rates during the post-Quantitative Easing (QE) period. Our results show a unidirectional information flow from NDF to the spot and forward rates in the post-QE period. We also find that the Indonesian government securities (IGS) played a vital role during the QE period, while international reserves preceded the US dollar–rupiah spot, forward, and NDF exchange rates post-QE. Hence, international reserves became an important policy variable in managing the currency value. Our finding redefines the role of IGS as a policy tool. As a policy suggestion, the Bank Indonesia should maintain a sufficient amount of foreign reserves to mitigate foreign exchange risks of the rupiah.

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Published
2020-10-31
How to Cite
Lau, W.-Y., & Yip, T.-M. (2020). INFORMATION FLOW BETWEEN THE US DOLLAR-RUPIAH EXCHANGE RATES. Buletin Ekonomi Moneter Dan Perbankan, 23(3), 441 - 464. https://doi.org/10.21098/bemp.v23i3.918
Section
Articles