INFORMATION FLOW BETWEEN THE US DOLLAR-RUPIAH EXCHANGE RATES

Wee Yeap Lau and Tien-Ming Yip
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Tien-Ming Yip: University of Malaya

Bulletin of Monetary Economics and Banking, 2020, vol. 23, issue 3, 439-460

Abstract: This study investigates the information flow between non-deliverable forward (NDF), spot, and forward US dollar–rupiah exchange rates during the post-Quantitative Easing (QE) period. Our results show a unidirectional information flow from NDF to the spot and forward rates in the post-QE period. We also find that the Indonesian government securities (IGS) played a vital role during the QE period, while international reserves preceded the US dollar–rupiah spot, forward, and NDF exchange rates post-QE. Hence, international reserves became an important policy variable in managing the currency value. Our finding redefines the role of IGS as a policy tool. As a policy suggestion, the Bank Indonesia should maintain a sufficient amount of foreign reserves to mitigate foreign exchange risks of the rupiah.

Keywords: Spot; Forward; Non-deliverable forward; Quantitative easing; Rupiah; Exchange rates (search for similar items in EconPapers)
JEL-codes: C51 F31 G13 (search for similar items in EconPapers)
Date: 2020
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Persistent link: https://EconPapers.repec.org/RePEc:idn:journl:v:23:y:2020:i:3g:p:439-460

DOI: 10.21098/bemp.v23i3.918

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