English (United Kingdom)

https://curated-unify.zendy.io/wp-json/zendy-region/v1/featured_content/oa?rat=en

https://curated-unify.zendy.io/wp-json/zendy-region/v1/highlighted_journal/

Global: Zendy Plus annual

Presents the access of premium content as premium feature

Premium Content

Presents the keyphrase highlighting as premium feature

Keyphrase Highlighting

Presents the summarisation as premium feature

Summarisation

Insights

Presents the pdf analysis as premium feature

PDF Analysis

Presents the zaia usage as premium feature

ZAIA

Global: Zendy Tools annual

Global: Zendy Free Plan

Global: Zendy Tools monthly

Global: Zendy Plus monthly

This research is carried out to analyze the causality and correlation of interest rate shock, net foreign asset and money supply towards rupiah exchange rate stability in Indonesia. Data used in this research is time series data, which consist of net foreign asset variable, interest rate variable, money supply variable and rupiah exchange rate towards US dollar within 2001 – 2015. Data analysis used is Vector Autoregressive approach. The research result shows that rupiah exchange rate process towards US dollar in Indonesia is based on Cholesky Ordering that is obtained from Granger Causality test result which is net foreign asset significantly effects money supply, then significantly effects the interest rate and finally significantly effects rupiah exchange rate. There is causality among interest rate, net foreign asset and money supply towards rupiah exchange rate stability in Indonesia. From VAR estimation, there is significant correlation on net foreign asset shock, money supply and interest rate simultaneously on rupiah exchange rate in Indonesia. In Impulse Reponse and variance decomposition analysis, the highest rupiah exchange rate response towards US dollar is from money supply, net foreign asset and interest rate respectively. Keyword: VAR Model Rupiah Exchange Rate Stability Introduction The increase of US dollar exchange rate causes goods prices increase, and this problem is experienced by many people.People purchasing power decreased and this situation effects the low rate of market reserve power which slowing down the industry as there are no consumers. Production slowing down causes low tax income for government, whereas the government obliged to return its debt in US dollars, and at the end there will be national fund shortage which needs to be saved by having more foreign loans. Consequently, severence of labors happen everywhere. About International Journal of Academic Research in Business and Social Sciences Vol. 9 , No. 4, April, 2019, E-ISSN: 2222-6990 © 2019 HRMARS 176 4,2 million people lost their jobs (Kompas April 3, 1999). Basic needs prices increase, economic recession and economic crisis happens. Rupiah exchange rate development towards US dollar in 2001-2015 can be seen in Figure 1. Figure 1 shows the fluctuation of rupiah exchange rate towards US dollar from 20012015. In January 2001 rupiah exchange rate was Rp.9.450,00/$, in February 2001 it depreciated to Rp.9.835, 00/$. The reason of rupiah depreciation in 2001 was due to politic instability then the president replacement from Abdurrahman Wahid to Megawati and also because of national economic recovery which still couldnt eliminate the wound from long crisis. In December 2002 rupiah exchange rate appreciated to Rp.8.867,00/$. It was due to positive market sentiment regarding several Asian Regional currency appreciation. The appreciation factor was influenced by central bank policy in establishing monetary program through foreign currency sterelization, the raise of positive market sentiment towards rupiah. Treaty of Paris Club and London Club for rescheduling government debt payment and capital inflow addition through IMF loan agreement and nation assets sale. In 2003, 1 rupiah exchange rate was Rp.8.876,00/$ while in January 2004 rupiah exchange rate was appreciated to Rp.8.441,00/$. During 2004-2015 rupiah exchange rate kept on fluctuating but it was depreciated until December 2015 where rupiah exchange rate was Rp.13.795,00/$. US dollar has replaced gold as world economic liquidity source and became world financial system base. Consequently, each country developed its net foreign assets in US dollar. US dollar reserve is needed so that a nation currency can be converted to US dollar. Net foreign asset in US dollar become essential for a nation economic stability and sustainability process, it was experienced by Indonesia during economic crisis. During crisis and low export activities, net foreign assets increase was commited by releasing new debt and withdrawing idle loan. At the end it was expected that increasing net foreign asset by having new debt can stabalize rupiah exchange rate, however the economic condition got worse. Other indicator which highly influenced exchange rate is interest rate. Interest rate is one of the factors which influences currency exchange rate changing. If interest rate increases and foreign exchange rate doesn’t change, Indonesian investors will reduce US dollar request as Indonesia offers more interesting return and foreign investors will offer US dollar to be invested in rupiah. Source : Indonesia Financial Statistic, (2016) Figure 1. Rupiah Exchange Rate Fluctuation towards US Dollar in Indonesia 2001 2015 International Journal of Academic Research in Business and Social Sciences Vol. 9 , No. 4, April, 2019, E-ISSN: 2222-6990 © 2019 HRMARS 177 Hsieh, (2009), interest rate increase will cause rupiah depreciation, moreover Indonesia reduces interest rate. Hsieh, (2009), becomes interesting to re-examine in Indonesia by using different model (Fadli at all, 2011), long term interest rate influences significantly and negatively towards exchange rate in Malaysia. Kayhan, Bayat, & Uğur, (2013), there are two ways causality between real exchange rate and real interest rate in Turkey. (Dorothy and Sabina, 2014), stated that monotery policy doesn’t always have influence in stabilizing prices and exchange rate in Nigeria. Frenkel, (1979), Sargent and Wallace (1981), Cumby and Obstfeld (1982), interest rate distinction among countries determines exchange rate. In other researches, Hooper, and Morton, (1980), Woo (1985), Feldstein, (1986) and Hakkio (1986), Campbell and Clarida, (1987), (Meese and Rogoff, 1988), there is no correlation between interest rate and exchange rate. Literature of Related Review Exchange Rate Exchange rate is defined as foreign currency price in domestic currency price unit (Salvatore, 1999:49). According to Krugman, (2011), exchange rate is price of a nation currency which is measured in other currency. Price of a currency towards other currency is usually called as bilateral exchange rate or nominal exchange rate. We often only want to recognize a country currency exchange rate towards other country currency in a single number, than oversee other money separately. Exchange rate index measures average nominal exchange rate effectively. However in order to recognize whether our goods relatively cheaper or more expensive than foreign goods, we must also consider what happen to domestic and foreign prices. Therfore real effective exchange rate or real exchange rate is used. This measurement is stated in foreign goods prices ration, stated in our currency, relatively towards domestic goods and services prices. This real exchange rate measures a nation competition in international trade (Dornbusch and Fishr, 2008:173). Economic Fundamental Factors that Effect Exchange Rate Interest Rate Distinction Karahan, (2012) analyzed correlation between exchange rate and exchange rate uncertainty by using GARCH specification and Granger causality test and Impulse-Response Function Analysis Variables used in this model are : ERUNC = f (INTER). Which is: ERUNC = Exchange Rate INTER = Interest rate Kayhan (2013) analyzed exchange rate and interest rate by using causality test and make model specification which is ER = f (IR). Which is: ER= Exchange Rate International Journal of Academic Research in Business and Social Sciences Vol. 9 , No. 4, April, 2019, E-ISSN: 2222-6990 © 2019 HRMARS 178 IR= Interest rate Money Supply Money supply is often distinguished between money supply broadly and tightly. Money supply broadly often referred as ecomonic liquidity or M2. While money supply tightly is also referred as money supply, or M1 (Widodo, 2009:47) Monotery authority has major role as initial source from the establishment of money supply. Communities are last consumers from money that they use to ease production, consumption and exchange activities. If money offer in the communities is too high then it will create inflation, inflation is a money exchange rate depreciation process and is showed by goods and services price increase continuously. If the circulation of money in the communities is too low, then it will create deflation. Net Foreign Asset Net foreign asset is an important indicator among other monetary indicators. It is not only as indicator for a nation economic but also as an assurance for nation stability, so sufficient net foreign asset is a requirement for a nation. In free floating exchange rate system, where central bank doesn’t have obligation to intervene, sufficient net foreign asset is not so important. In accordance to that situation Kemre, (2002) used a model by having fundamental factor which is: ER = ƒ ( CR,CF, IRD, CAB, RDF ) Which is: ER = exchange rate CR = Net foreign asset CF = cash flow IRD = interest rate distinction CAB = current transaction balance RDF = fiscal deficit ratio with industrial output

Rupiah Exchange Rate Stability towards US Dollars In Indonesia by VAR Approach