The Impact of Capital Reversal and the Threshold of Current Account Deficit on Rupiah

M. Noor Nugroho (), Ibrahim (), Tri Winarno () and Meily Ika Permata ()
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Meily Ika Permata: Bank Indonesia

Bulletin of Monetary Economics and Banking, 2014, vol. 16, issue 3, 1-26

Abstract: This paper studies the effects of foreign capital flows toward the exchange rate of rupiah both in total and across types of capital investment. This paper also analyzes the thresholds of current account deficit which significantly affect the rate of Rupiah. The estimation shows the capital outflow affect the rate of Rupiah to depreciate and is larger than the appreciation pressure of capital inflow (except when invested in Certificate of Bank Indonesia, SBI). Furthermore, the rate of Rupiah is more sensitive on government bond (SUN) than stock or SBI. The yield of this government bond largely affects the probability of the capital reversal. Related to the current account, the estimation shows that after exceeds the threshold of USD980 million monthly deficit orabout 2% of GDP, the exchange rate will depreciateby 12.7% (m-o-m) with the lag effect of 4 months.

Keywords: Capital flows; exchange rate; current account deficit; threshold. (search for similar items in EconPapers)
JEL-codes: F31 F32 (search for similar items in EconPapers)
Date: 2014
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Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:idn:journl:v:16:y:2014:i:3:p:1-26

DOI: 10.21098/bemp.v16i3.445

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