THE EXCHANGE RATE VOLATILITY AND EXPORT PERFORMANCE: THE CASE OF INDONESIA'S EXPORTS TO JAPAN AND THE US

Shinta Fitrianti

Abstract


This paper investigates the long-run and short-run impacts of the exchange rate volatility on
Indonesia’s real exports to its major trading partners; Japan and US. The study uses monthly data from January 1998 to October 2015 in order to capture the structural break period of the Global Financial Crisis 2008. In addition, commodity price is included as an explanatory variable. The index of exchange rate volatility is generated using moving sample standard deviation of the growth of the real exchange rate. This paper estimates the long-run cointegration using Autoregressive Distributed Lag (ARDL) bounds testing, while for the short-run dynamic this paper use error-correction-model (ECM). The findings suggest rupiah volatility against the Japanese yen reduces Indonesia’s export to Japan, both in the short and the long-run. Fluctuation of rupiah against the US dollar helps Indonesia’s export to the US in the short run, but the impact is not carried out to the long-run. On the other hand, the impact of commodity price shock is negligible, except for the long-run export to Japan.


Keywords


ARDL bounds testing, export, exchange rate volatility, Indonesia

Full Text:

PDF

References


Arize, Augustine C., Osang, Thomas and Slotje, Daniel J. 2008. Exchange-rate Volatility in Latin

America and Its Impact on Foreign Trade. International Review of Economics and Finance,

: 33-44.

Athukorala, Prema-Chandra. 2006. Post-crisis Export Performance: The Indonesian Experience

in Regional Perspective. Bulletin of Indonesian Economic Studies, 42(2): 177-211.

Auboin, Marc and Ruta, Michele. 2013. The Relationship between Exchange Rates and

International Trade: A Literature Review. World Trade Review, 12(3): 577-605.

Baak, SangJoon. 2008. The Bilateral Real Exchange Rates and Trade between China and The

U.S.. China Economic Review, 19: 117-127.

Bahmani-Oskooee, Mohsen and Durmaz, Nazif. 2015. Exchange Rate Volatility and Turkish

Commodity Trade with The Rest of The World. Economic Change and Restructuring, 49(1):

-21.

Bahmani-Oskooee, Mohsen, Harvey, Hanafiah and Hegerty, Scott W. 2015. Exchange Rate

Volatility and Commodity Trade between The USA and Indonesia”. New Zealand Economic

Papers, 49(1): 78-102.

Bustaman, Arief and Jayanthakumaran, Kankesu. 2007. The Impact of Exchange Rate Volatility

on Indonesia’s Exports to The USA: An Application of ARDL Bounds Testing Procedure.

International Journal of Applied Business and Economic Research, 5(1): 1-21.

Chit, Myint M. 2008. Exchange Rate Volatility and Exports: Evidence from The ASEAN-China

Free Trade Area. Journal of Chinese Economic and Business Studies, 6(3): 261-277.

Chit, Myint M., Rizov, Marian and Willenbockel, Dirk. 2010. Exchange Rate Uncertainty and

Exports: New Empirical Evidence from The Emerging East Asian Economies. The World

Economy: 239-264.

Davis, CG. 2014. What Impact Does Exchange Rate Volatility Have on World Turkey Trade

Flows? World’s Poultry Science Journal, 70: 775-786.

Doğanlar, Murat. 2002. Estimating The Impact of Exchange Rate Volatility on Exports: Evidence

from Asian Countries. Applied Economics Letters, 9(13): 859-863.

Fang, WenShwo, Lai, YiHao and Miller, Stephen M. 2006. Export Promotion Through Exchange

Rate Changes: Exchange Rate Depreciation or Stabilization? Southern Economic Journal,

(3): 611-626.

Edwards, Kim and Sahminan, Sahminan. 2008. Exchange Rate Movements in Indonesia:

Determinants, Effects, and Policy Challenges. Bank Indonesia Working Paper, http://www.

bi.go.id/en/publikasi/artikel-kertas-kerja/kertas-kerja/Documents/30da02155f76482f94b9

edbfa264b50d2008_WP25_ExchangeratemovementsinIndonesia.pdf/.

Frankel, Jeffrey A., and Rose, Andrew K. 2010. Determinants of Agricultural and Mineral

Commodity Prices. Harvard Kennedy School, https://dash.harvard.edu/bitstream/

handle/1/4450126/.

Morgan Stanley. 2013. Preparing for Volatility. Morgan Stanley Research, https://www.

morganstanley.com/institutional/research/pdf/FXPulse_20130801.pdf/.

Pesaran, M. Hashem, Shin, Yongcheol and Smith, Richard J. 2001. Bounds Testing Approaches

to The Analysis of Level Relationships. Journal of Applied Econometrics, 16(3): 289-326.

Poon, Wai C., Choong, Chee-Keong and Habibullah, Muzafar S. 2005. Exchange Rate Volatility

and Exports for Selected East Asian Countries. ASEAN Economic Bulletin, 22(2): 144-159.

Siregar, Reza and Rajan, Ramkishen S. 2004. Impact of Exchange Rate Volatility on Indonesia’s

Trade Performance in The 1990s. Journal of The Japanese and International Economies,

(2): 218-240.

Tsen, Wong H. 2014. Exchange Rate Volatility and International Trade. J Stock Forex Trad, 3:2.

United Nations Conference on Trade and Development. 2013. Exchange Rates, International

Trade and Trade Policies. Policy Issues in International Trade and Commodities, Study Series

no. 56.

UNCTAD, see United Nations Conference on Trade and Development.

Warjiyo, Perry. 2013. Indonesia: Stabilizing The Exchange Rate along Its Fundamental. Bank for

International Settlements (BIS) paper no. 73, http://www.bis.org/publ/bppdf/bispap73m.pdf/.

Jeffrey M. Wooldridge. 2013. Introductory Econometrics: A Modern Approach. South-Western

Cengage Learning, Mason.

World Trade Organization. 2010. Annual Report, https://www.wto.org/english/res_e/booksp_e/

anrep_e/world_trade_report10_e.pdf/.

WTO, see World Trade Organization.

Marno Verbeek. 2008. A Guide to Modern Econometrics. John Wiley and Sons, Ltd, West Sussex.

Zainal, Arindra A. 2004. Exchange Rate Pass-through, Exchange Rate Volatility, and Their Impacts

on Export: Evidence from Indonesian Data. Dissertation, Kansas State University, Manhattan.




DOI: http://dx.doi.org/10.21098/bemp.v20i1.724

Refbacks

  • There are currently no refbacks.


This Journal is Indexed by :












Creative Commons License

Bulletin Of Monetary Economics and Banking is licensed under a Creative Commons Attribution-NonCommercial 4.0 International License.

BULLETIN OF MONETARY ECONOMICS AND BANKING | Printed ISSN: 1410 8046 | Online ISSN: 2460 9196 | Published by: Bank Indonesia Institute, Bank Indonesia | Jl. M.H Thamrin No. 2 Jakarta, Indonesia | Phone:+62-21 2981–7335, Fax.: +62-21 350-1912. e-Mail: bemp@bi.go.id; paper.bemp@gmail.com;