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The Influence of Oil Prices on Indonesia’s Exchange Rate

Author

Listed:
  • Seema Wati Narayan

    (Royal Melbourne Institute of Technology University)

  • Telisa Falianty

    (Universitas Indonesia)

  • Lutzardo Tobing

    (Bank Indonesia)

Abstract

This study tests for a long-run relation between oil prices and the rupiah–US dollarexchange rate. We discover, first, that the long-run cointegration relation between oilprices and the real exchange rate (RER) is sensitive to different exchange rate regimesin Indonesia. Second, we find a long-run cointegrating relation between oil prices andthe RER over the float exchange rate regime. However, in the managed float period,there is no evidence of a long-run relation between oil prices and the RER. In the longrun, higher oil prices lead to an appreciation of the rupiah against the US dollar in thefloat period (post-August 1997 period). We demonstrate that these results are robust todifferent data frequencies.

Suggested Citation

  • Seema Wati Narayan & Telisa Falianty & Lutzardo Tobing, 2019. "The Influence of Oil Prices on Indonesia’s Exchange Rate," Bulletin of Monetary Economics and Banking, Bank Indonesia, vol. 21(3), pages 303-322, January.
    • Handle: RePEc:idn:journl:v:21:y:2019:i:3b:p:303-322
    DOI: https://doi.org/10.21098/bemp.v21i3.1007
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    References listed on IDEAS

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    Cited by:

    1. Arafet Hamida & Salah ben Nasr, 2024. "Volatility Transmission between Oil Price and Exchange Rate," International Journal of Energy Economics and Policy, Econjournals, vol. 14(5), pages 380-392, September.

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    Keywords

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    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • Q43 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Energy and the Macroeconomy

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