Dynamic Analysis of the Stock Price Index and the Exchange Rate Using Vector Autoregression (VAR): An Empirical Study of the Jakarta Stock Exchange, 2001-2004

Mila Novita and Nachrowi Nachrowi ()
Additional contact information
Mila Novita: Lecturer, Department of Mathematics, Faculty of Mathematics and Natural Science University of Indonesia (FMIPA UI)

Economics and Finance in Indonesia, 2005, vol. 53, 263-278

Abstract: This research examines whether there is a causal relationship between the Rupiah exchange rate and the composite stock price index. The Vector Autoregressive (VAR) method is applied to analyze daily time series data from January 24th, 2001 to June 18th, 2004. It shows that the series are non-stationary and become stationary on the first difference or I (1). Although they have the same integration order, neither variable is co-integrated based on the Augmented Engle Granger Method and Johansen’s Co-integration Test. Consequently, the modeling technique used in this study (VAR) is applied to the first difference level. From the VAR model, it was found that the Rupiah exchange rate is affected by both the past exchange rate and the stock price index (ceteris paribus). In contrast, the stock price index is only affected by past index movements. These results are supported by innovative accounting calculated by both Variance Decompositions (VDCs) and Impulse Response Function (IRF). We conclude that the index can be a leading indicator for the exchange rate following the Portfolio Balance Approach.

Keywords: Stock Price Index; Indonesia; Capital Market; Exchange Rate (search for similar items in EconPapers)
JEL-codes: E44 F31 G12 (search for similar items in EconPapers)
Date: 2005
References: View complete reference list from CitEc
Citations:

Downloads: (external link)
https://lpem.org/repec/lpe/efijnl/200511.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:lpe:efijnl:200511

Access Statistics for this article

More articles in Economics and Finance in Indonesia from Faculty of Economics and Business, University of Indonesia Contact information at EDIRC.
Bibliographic data for series maintained by Muhammad Halley Yudhistira ( this e-mail address is bad, please contact ).