In the effort to maintain exchange rate stability, it is necessary to recognize the factors that influence the movements. Theoretically, the interaction between forex supply and demand - as a commodity traded on the forex market - will establish a price, which in this case is the rupiah rate (rupiah against the US dollar). Referring to the theory, the exchange rate model to be generated by this study can explain the effect of currency supply and demand dynamics for rupiah exchange rate movements.
Bank risk management will bring the bank to a neutral position to avoid exchange rate risk and. In the context of the forex market, the commodity being traded is the forex, while the price is the exchange rate. Evan and Lyons (2005) empirically demonstrated the accumulation of order flow affecting the exchange rate.
The study results show that the supply and demand variables significantly affect the movement of the exchange rate. In this study, the effects of exchange rate changes on prices (inflation) through a direct pass-through will be estimated. Estimate of exchange rate effect on the price (exchange rate pass-through) refers to the existing study prepared by Kurniati (2007).
In such a study, the effects of exchange rate changes on price are estimated through direct pass-through.
Initial Identification
Data
ESTIMATE AND ANALYSIS RESULTS 1. Forex Market Review
Estimate Results
Long term Short term Short term Short term Short term Long term Long term Long term Long term Long term Long term Long term Long term Long term Short term Long term Long term Long term Long term Long term Long term Long term Long term Short term Short term Short term Long term Long term Long term during Long Term Long Term Long Term Short Term Short Term Short Term Short Term Short Term Long Term Long Term Long Term Long Term Short Term Short Term Short Term Short Term Coef. Long Term Short Term Short Term Short Term Short Term Long Term Long Term Long Term Long Term Long Term Short Term Short Term Short Term Long Term Long Term Long Term Long Term Short Term Short Term Short Term Short Term Short Term. Meanwhile, in the short term, the most influencing factor on imports is the exchange rate change.
Compared to the previous study, the effects of the exchange rate on import price movements become increasingly higher, especially in the short run. Long term Long term Short term Short term Short term Short term Long term Long term Long term Long term Long term Long term Long term Short term Short term Long term Long term Long term Long term Long term Long term Short term Short term Short term Short term Long term Long term Long term Long-term Long-term Short Long-term Short Long-term Long-term Short Long-term Long-term Short Long-term Short Long-term Long-term Short Long-term Long-term Short Long-term Long-term Short Long Term Short Long Term Long Term Short Long Term Long Term Short. The scenario of changes in forex supply and demand is in the form of an increase in forex supply and demand that reaches 20%.
The test results of the exchange rate model (by fulfilling the BLUE assumption) both in the long and short term can be concluded in the following table. The change scenario for demand and forex supply is in the form of forex supply and demand decrease that reaches 20%. PPPPP Scenario 2 Scenario 2 Scenario 2 Scenario 2 Scenario 2 Baseline Baseline Baseline Baseline Baseline Baseline PM PMPM PMPM Scenario 2 Scenario 2 Scenario 2 Scenario 2 Scenario 2 Baseline Baseline Baseline Baseline Baseline Baseline.
PPPPP Scenario 1 Scenario 1 Scenario 1 Scenario 1 Scenario 1 Baseline Baseline Baseline Baseline PM PM PM Scenario 1 Scenario 1 Scenario 1 Scenario 1 Scenario 1 Baseline Baseline Baseline. PPPPP Scenario 3 Scenario 3 Scenario 3 Scenario 3 Scenario 3 Baseline Baseline Baseline Baseline P M P M P M P M P M Scenario 3 Scenario 3 Scenario 3 Scenario 3 Scenario 3 Baseline Baseline Baseline. PPPPP Scenario 4 Scenario 4 Scenario 4 Scenario 4 Scenario 4 Baseline Baseline Baseline Baseline P M P M P M P M P M Scenario 4 Scenario 4 Scenario 4 Scenario 4 Scenario 4 Baseline Baseline Baseline.
PPPPP Scenario 5 Scenario 5 Scenario 5 Scenario 5 Scenario 5 Baseline Baseline Baseline Baseline Baseline PM PM PM PM PM PM Scenario 5 Scenario 5 Scenario 5 Scenario 5 Scenario 5 Baseline Baseline Baseline Baseline Baseline. The change scenario of the domestic demand and supply of forex is in the form of a 20% increase in the supply of forex and a 20% increase in the demand for foreign exchange. The scenario of changes in domestic demand and forex supply is in the form of a 20% decline in the forex supply and a 20% decline in foreign exchange demand.
PPPPP Scenario 7 Scenario 7 Scenario 7 Scenario 7 Scenario 7 Baseline Baseline Baseline Baseline PM PM PM Scenario 7 Scenario 7 Scenario 7 Scenario 7 Scenario 7 Baseline Baseline Baseline. PPPPP Scenario 8 Scenario 8 Scenario 8 Scenario 8 Scenario 8 Baseline Baseline Baseline Baseline PM PM PM PM Scenario 8 Scenario 8 Scenario 8 Scenario 8 Scenario 8 Baseline Baseline Baseline.
CONCLUSIONS AND RECOMMENDATIONS 1. Conclusions
Policy Recommendations
The problems that occur in the forex market have a potential to make the exchange rate unstable and further affect the inflation rate, exports and imports and output. The balancing efforts must begin with monitoring supply and demand developments in the forex market, including significant player activities, to anticipate the occurrence of exchange rate imbalances and volatility. Stages to reduce the demand for forex are relatively limited as the Bank of Indonesia does not have the authority to limit it.
The only thing BI can do is not to intervene to absorb forex from the market, and by coordinating with the government to advise that the purchase of forex by SOE should be limited or the timing fixed, for example, when a large amount of capital inflow occurs. In contrast, BI can make some efforts to increase the forex supply by selling forex interventions. BI should continue selling forex interventions that have been carried out regularly while still taking into account the level of need (namely to meet actual demand) and the implementation time (namely outflows occur and rupiah is depressed).
To prevent a capital return, some efforts should be made to maintain the condition or investment climate of the portfolio in Indonesia to keep it attractive to foreign investors. The phases can be carried out covering: maintaining the stability of the rupiah, maintaining prudent and transparent macroeconomic policies and coordinating with the government to encourage the issuance of new investment instruments (increasing alternative investment opportunities). Meanwhile, in order to attract more forex offers through FDI, remittances of foreign workers and tourists, it is necessary to create a favorable investment climate together with the government in order to attract more Indonesian workers living abroad country (especially those trained and educated) and grow. attractiveness of tourism in Indonesia.
Among large trade activities, which tend to be speculative in nature, some effort is needed to protect real demand/supply, especially scheduled ones such as import payments, export earnings and foreign debt payments, by developing hedging markets (futures and swaps markets). . ). The phases that BI can adopt consist of: activating forex intermediation to a greater extent through futures and swap transactions, as well as making existing swap hedging options more attractive to banks.
