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Exchange Rate of Indonesia: Does Rupiah Overshoot?

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  • Pratomo, Wahyu Ario

Abstract

This research attempts to analyze whether Rupiah overshoots when the crisis hit Indonesia in mid of 1998. It also try to find out the fundamental macroeconomic factors that influence exchange rate when economic crisis hit Indonesia. It uses ordinary least square method and also cointegration in order to see long-term relationship. Furthermore, in order to examine the stability of exchange rate when the exchange rate system changed from managed floating to free floating, this paper apply Chow Test. The result shows that when the economic crisis hit Indonesia, Rupiah overshoots and there has been a structural change of exchange rate after 1998.

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Bibliographic Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 7381.

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Date of creation: Sep 2005
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Handle: RePEc:pra:mprapa:7381

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Keywords: Overshoot; exchange rate; economic crisis; Indonesia;

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  1. Maurice Obstfeld and Kenneth Rogoff., 2000. "The Six Major Puzzles in International Macroeconomics: Is There a Common Cause?," Center for International and Development Economics Research (CIDER) Working Papers, University of California at Berkeley C00-112, University of California at Berkeley.
  2. David Backus, 1982. "Empirical Models of the Exchange Rate: Separating the Wheat from the Chaff," Working Papers, Queen's University, Department of Economics 463, Queen's University, Department of Economics.
  3. Papell, David H., 1988. "Expectations and exchange rate dynamics after a decade of floating," Journal of International Economics, Elsevier, Elsevier, vol. 25(3-4), pages 303-317, November.
  4. Bahmani-Oskooee, Mohsen, 1998. "Do exchange rates follow a random walk process in Middle Eastern countries?," Economics Letters, Elsevier, Elsevier, vol. 58(3), pages 339-344, March.
  5. Frankel, Jeffrey A, 1979. "On the Mark: A Theory of Floating Exchange Rates Based on Real Interest Differentials," American Economic Review, American Economic Association, American Economic Association, vol. 69(4), pages 610-22, September.
  6. Driskill, Robert A, 1981. "Exchange-Rate Dynamics: An Empirical Investigation," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 89(2), pages 357-71, April.
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