FX INTERVENTION STRATEGY AND EXCHANGE RATE STABILITY IN INDONESIA

Solikin Juhro and Prayudhi Azwar

No WP/03/2021, Working Papers from Bank Indonesia

Abstract: This study aims to measure the effectiveness of foreign exchange (FX) intervention strategy in Indonesia in affecting the rupiah exchange rate stability. Using the instrumental variable (IV) approach to analyze FX intervention strategies from January 2010 to December 2020, we find that there are differences in the effectiveness of intervention in the spot market and the derivative market. Partially, FX intervention is more effective in the spot market than in the derivative market. We find also that intervention strategies carried out simultaneously by Bank Indonesia in the spot and derivative markets effectively improves the effectiveness of policy strategy in affecting rupiah exchange rate stability. Amid increasingly complex challenges facing by central banks in managing exchange rate stability, this study brings fundamental policy implications regarding to the importance of an integrated intervention strategy; not only in spot and derivative markets, but also in bond markets.

Keywords: Effectiveness; FX Intervention; Spot Market; Derivative Market. (search for similar items in EconPapers)
JEL-codes: C22 E58 F31 O24 (search for similar items in EconPapers)
Pages: 28 pages
Date: 2021
New Economics Papers: this item is included in nep-mon and nep-sea
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Persistent link: https://EconPapers.repec.org/RePEc:idn:wpaper:wp032021

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