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The Correlation of Exchange Rate and Inflation and Its Effect on Stock Markets. Case Study on Consumer Good Index Indonesia: 2004 – 2017

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  • Vietha Devia S.S.

Abstract

The purpose of this study is to see whether inflation and exchange rates have a two-way relationship and their influence on the stock market case study on the Consumer Good Index. In the first session the author wrote the introduction of the important of researching this topic, session two literature reviews about exchange rates, inflation and the stock market, the third session about the research methods and the fourth session described the overall discussion. The data used are monthly time series data from 2004 to 2017 and the estimation model used the VAR model. The exchange rate used Rupiah against U$D and inflation measure used Consumer Price Index. The results show that inflation do not affect the exchange rate, but the exchange rate significantly affect the inflation rate. As the stock market, there is a continuing decline or negative movement when inflation increased. Then when the Rupiah exchange rate continues to show a depreciating trend, the movement of the stock market seems to be decreasing.

Suggested Citation

  • Vietha Devia S.S., 2019. "The Correlation of Exchange Rate and Inflation and Its Effect on Stock Markets. Case Study on Consumer Good Index Indonesia: 2004 – 2017," Academic Journal of Economic Studies, Faculty of Finance, Banking and Accountancy Bucharest,"Dimitrie Cantemir" Christian University Bucharest, vol. 5(2), pages 32-44, June.
    • Handle: RePEc:khe:scajes:v:5:y:2019:i:2:p:32-44
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    References listed on IDEAS

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    More about this item

    Keywords

    Inflation; exchange rate; stock market; consumer good index;
    All these keywords.

    JEL classification:

    • C58 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Financial Econometrics
    • D53 - Microeconomics - - General Equilibrium and Disequilibrium - - - Financial Markets
    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation

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