Exchange Rate Volatility and Trade Equation in Indonesia

摘要

This paper examines the characteristics of short-term and long-term fluctuations/volatility of Indonesia exchange rate and investigates whether this volatility has affected Indonesia's exports flows. In particular the paper i investigates the impact of exchange rate volatility on aggregate Indonesia exports flows to the United State and also on imports. The Augmented Dickey-Fuller Test was employed on quarterly data for the period January 2000 to December 2008 to test for stationarity on the variables of interest. Estimates of the long-term influence of exchange rate volatility on the trade flows are obtained using the Johansen Cointegration Test. The results suggest that a significant long-term relationship linking exchange rate volatility and the trade volume between Indonesia and the United States exists. A negative long-term relationship between exchange rate fluctuations and the export volume sent from Indonesia to the US is obtained. On the other hand, exchange rate volatility exerts a positive long-term effect upon the import volume.