The Portofolio Model of Exchange Rate Determination: The case of Rupiah exchange rate

DOI

10.2991/icobame-18.2019.31How to use a DOI?

Keywords

exchange rate; macro economic stabilility; portofolio; error corection model; foreign exchange reserve

Abstract

Indonesia economy is prone to the world economy that makes Rupiah sensitive and volatile. Thus, it affects macroeconomic stability. In conclusion, Rupiah exchange rate should be maintained in order to maintain macroeconomic stability. An approach model development of Rupiah exchange rate is needed to explain the behavior of Rupiah exchange rate to US dollar. This research aimed to analyze Rupiah exchange rate behavior based on portfolio model. This research can be used to determine exchange rate management policy to stabilize rupiah. The Portfolio exchange rate model explained that the exchange rate nominal was influenced by cumulative current account change and exchange rate value was determined by stock equilibrium. Analysis method used error correction model (ECM) to test the portfolio model. If in the short term there is an imbalance, the ECM model will correct it in the long run. With this mechanism the problem of smooth regression can be avoided through the use of difference variables that remain in the model without losing long-term information caused by the use of different data only. The research period was 2000.1-2016.4 by using quarterly period. The research result find that variables in portfolio model showed national income, interest rate, and foreign exchange reserves influenced Rupiah exchange rate to US dollar in short run. In the other hand, price variable did not significantly influence Rupiah exchange rate to US dollar. Based on the test of portfolio model, a Rupiah exchange rate stabilization policy could be assigned based on foreign exchange reserves management.

Copyright

© 2019, the Authors. Published by Atlantis Press.

Open Access

This is an open access article distributed under the CC BY-NC license (http://creativecommons.org/licenses/by-nc/4.0/).

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TY  - CONF
AU  - Agus Budi Santosa
AU  - Agung Nusantara
AU  - Sri Nawatmi
PY  - 2019/07
DA  - 2019/07
TI  - The Portofolio Model of Exchange Rate Determination: The case of Rupiah exchange rate
BT  - Proceedings of the International Conference on Banking, Accounting, Management, and Economics (ICOBAME 2018)
PB  - Atlantis Press
SP  - 140
EP  - 143
SN  - 2352-5428
UR  - https://doi.org/10.2991/icobame-18.2019.31
DO  - 10.2991/icobame-18.2019.31
ID  - Santosa2019/07
ER  -