Analysis of the Effect of Monetary Variables on Exchange Rate Balance in Indonesia
Rika Utami Restihani (a*), Hasdi Aimon (b), Sri Ulfa Sentosa (c)

Master of Economics, Faculty of Economic, Universitas Negeri padang
*rikautamirestihani1107762[at]gmail.com

Abstract

This research examines the effect and equilibrium of monetary variables on real exchange rates (RER) in short and long terms in Indonesia. Using time series data from 1986-2017 with the error correction model (ECM) method. There are two findings in this study. First, in the short term, monetary variables, namely inflation, the money supply, and interest rates significantly influence the real exchange rate in Indonesia. Second, in the long terms, the interest rate has a significant effect, which means that an increase in interest rates will contribute to the appreciation of the domestic exchange rate against foreign exchange, in contrast to inflation and the money supply that has no significant effect. This can occur because of an increase in inflation and the domestic money supply not exceeding the inflation rate and the number of foreign exchange offers. Thus, the exchange rate is still in the equilibrium

Keywords: ECM, Monetary Variable, RER

Topic: Financial Management and Accounting