PREDICTORS OF EXCHANGE RATE RETURNS: EVIDENCE FROM INDONESIA

Bayu Arie Fianto (), Nisful Laila, Raditya Sukmana and Muhammad Madyan
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Bayu Arie Fianto: Universitas Airlangga
Nisful Laila: Universitas Airlangga
Raditya Sukmana: Universitas Airlangga
Muhammad Madyan: Universitas Airlangga

Bulletin of Monetary Economics and Banking, 2020, vol. 23, issue 2, 239-252

Abstract: Using historical time-series data, we investigate Indonesia’s exchange rate return predictability. We employ nine predictors, namely stock price, gold price, oil price, commodity price, inflation, balance of payment, total exports, the US T-bill rate, and the US federal fund rate. With historical data, we fail to discover any evidence that these factors predict Indonesia’s exchange rate returns. However, we find that oil price, commodity price, inflation, and the US T-bill rate can significantly predict Indonesia’s exchange rate returns during the Asian financial crisis. Our findings key implication is that it is the external factors that dominate the evolution of Indonesia’s exchange rate, and inflation rate is the only domestic factor for policy makers to control.

Keywords: Exchange rate; Predictors; Inflation; External factors; Indonesia (search for similar items in EconPapers)
JEL-codes: F30 F31 F37 (search for similar items in EconPapers)
Date: 2020
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Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:idn:journl:v:23:y:2020:i:2e:p:239-252

DOI: 10.21098/bemp.v23i1.1169

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