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Short Term Portfolio Investment and BI Rate: Do They Determine the Stabilization of Rupiah Exchange Rate in Indonesia?

Author

Listed:
  • Chenny Seftarita

    (Development Economics Department, Faculty of Economics and Business, Universitas Syiah Kuala, Aceh, Indonesia)

  • Fitriyani

    (Development Economics Department, Faculty of Economics and Business, Universitas Syiah Kuala, Aceh, Indonesia)

  • Cut Zakia Rizki

    (Development Economics Department, Faculty of Economics and Business, Universitas Syiah Kuala, Aceh, Indonesia)

  • Diana Sapha

    (Development Economics Department, Faculty of Economics and Business, Universitas Syiah Kuala, Aceh, Indonesia)

  • Abd. Jamal

    (Development Economics Department, Faculty of Economics and Business, Universitas Syiah Kuala, Aceh, Indonesia)

Abstract

This study aims to investigate the influence of short-term portfolio investments and BI interest rate on fluctuation of rupiah exchange rate in Indonesia. The data used is quarterly data from 2010 to 2016 collected from Indonesia Central Bank. Using the Autoregressive Distributed Lag (ARDL) method, the result showed that rupiah exchange rate was strongly influenced by shocks in the private debt securities, joint stock price index, and BI Rate, both in the long run and short run. Moreover, it is found that there was a short-run and long-run balance relationship between Short Term Portfolio Investments and BI rate against the rupiah exchange rate. Thus, it is recommended that in order to stabilize the exchange rate, it is necessary to maintain the stability of short-term portfolio investments.

Suggested Citation

  • Chenny Seftarita & Fitriyani & Cut Zakia Rizki & Diana Sapha & Abd. Jamal, 2019. "Short Term Portfolio Investment and BI Rate: Do They Determine the Stabilization of Rupiah Exchange Rate in Indonesia?," Journal of Economic Development, Environment and People, Alliance of Central-Eastern European Universities, vol. 8(1), pages 18-28, March.
    • Handle: RePEc:sph:rjedep:v:8:y:2019:i:1:p:18-28
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    References listed on IDEAS

    as
    1. Pesaran, M.H. & Shin, Y., 1995. "An Autoregressive Distributed Lag Modelling Approach to Cointegration Analysis," Cambridge Working Papers in Economics 9514, Faculty of Economics, University of Cambridge.
    2. Carlos A. Ibarra, 2011. "Capital flows, real exchange rate, and growth constraints in Mexico," International Review of Applied Economics, Taylor & Francis Journals, vol. 25(6), pages 653-668, November.
    3. di Giovanni, Julian & Shambaugh, Jay C., 2008. "The impact of foreign interest rates on the economy: The role of the exchange rate regime," Journal of International Economics, Elsevier, vol. 74(2), pages 341-361, March.
    4. Jing Cynthia Wu & Fan Dora Xia, 2016. "Measuring the Macroeconomic Impact of Monetary Policy at the Zero Lower Bound," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 48(2-3), pages 253-291, March.
    5. Ibarra, Carlos A., 2011. "Capital Flows and Real Exchange Rate Appreciation in Mexico," World Development, Elsevier, vol. 39(12), pages 2080-2090.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Short Term Portfolio Investments; Nominal Exchange Rate; BI Rate; ARDL;
    All these keywords.

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • E42 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Monetary Sytsems; Standards; Regimes; Government and the Monetary System
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions

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