IDEAS home Printed from https://ideas.repec.org/a/lpe/efijnl/201506.html
   My bibliography  Save this article

Current Account and Real Exchange Rate Dynamics in Indonesia

Author

Listed:
  • Firman Mochtar
  • Yoga Affandi

    () (Bank Indonesia)

Abstract

We analyzed the role of both permanent and temporary factors in affecting the Indonesian current account and real exchange dynamics before and after 2000. Adopting Lee and Chinn (1998; 2006) approach as well as Chinn et al. (2007), two results stand out. First, we confirm that the behavior of the real exchange rate has altered since 2000. Identifications show that permanent shocks have been the primary causes for the movement of the real exchange rate after 2000, while in the period before 2000, Indonesia’s real exchange rate changes were characterized by greater dominance of temporary shocks. The apparent change in the real exchange rate behavior may be strongly justified by the implementation of free-floating exchange rate system since August 1997. Second, the shift of the real exchange rate behavior after 2000 has not necessarily affected the current account dynamics. Empirical evidence confirms that the variance in current account post 2000 remains largely due to temporary shocks. Albeit having increasing influence, permanent shocks have insignificant effect in explaining fluctuations of the current account. In this sense, the current account surplus after 2000 has been attributed largely to nominal variables such as price increase, while the impact of productivity improvement is still limited.

Suggested Citation

  • Firman Mochtar & Yoga Affandi, 2015. "Current Account and Real Exchange Rate Dynamics in Indonesia," Economics and Finance in Indonesia, Faculty of Economics and Business, University of Indonesia, vol. 61, pages 83-91, August.
  • Handle: RePEc:lpe:efijnl:201506
    as

    Download full text from publisher

    File URL: http://www.lpem.org/repec/lpe/efijnl/201506.pdf
    Download Restriction: no

    References listed on IDEAS

    as
    1. Masahiko Shibamoto & Shigeto Kitano, 2012. "Structural Change in Current Account and Real Exchange Rate Dynamics: Evidence from the G 7 Countries," Pacific Economic Review, Wiley Blackwell, vol. 17(5), pages 619-634, December.
    2. Lee, Jaewoo & Chinn, Menzie D., 2006. "Current account and real exchange rate dynamics in the G7 countries," Journal of International Money and Finance, Elsevier, vol. 25(2), pages 257-274, March.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    Current Account; Real Exchange Rate; Asian Crises 1997/1998;

    JEL classification:

    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:lpe:efijnl:201506. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Muhammad Halley Yudhistira). General contact details of provider: http://edirc.repec.org/data/feuinid.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.