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Real Exchange Rate Misalignments: The Case Of The Indonesian Rupiah

Author

Listed:
  • Rasbin

    (The House of Representative of Republic of Indonesia)

  • Mohamad Ikhsan

    (University of Indonesia)

  • Beta Y. Gitaharie

    (University of Indonesia)

  • Yoga Affandi

    (Bank Indonesia)

Abstract

This paper analyses the equilibrium price of the Indonesian Rupiah using the Synthetic Control Method (SCM) and assesses its misalignments. We find evidence of Rupiah misalignment, as the currency was undervalued for most periods, except for 1993-1996. This finding is robust across model specifications, predictors, and weighting. Our finding implies that keeping the exchange rate at its equilibrium level is ideal, and that policymakers can take advantage of the undervalued currency to promote economic growth via exports.

Suggested Citation

  • Rasbin & Mohamad Ikhsan & Beta Y. Gitaharie & Yoga Affandi, 2021. "Real Exchange Rate Misalignments: The Case Of The Indonesian Rupiah," Bulletin of Monetary Economics and Banking, Bank Indonesia, vol. 24(3), pages 441-464, September.
    • Handle: RePEc:idn:journl:v:24:y:2021:i:3f:p:441-464
    DOI: https://doi.org/10.21098/bemp.v24i3.1268
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    More about this item

    Keywords

    Misalignments; Equilibrium real exchange rate; Real exchange rate; Synthetic control method;
    All these keywords.

    JEL classification:

    • C29 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Other
    • F10 - International Economics - - Trade - - - General
    • F31 - International Economics - - International Finance - - - Foreign Exchange

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