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Offshore and Onshore IDR Market: Evidence on Information Spillover

Author

Listed:
  • Yayat Cadarajat

    (Bank Indonesia)

  • Alexander Lubis

    (Bank Indonesia)

Abstract

This paper investigates the information transmission between off-shore and on-shore Rupiah currency markets Indonesian. We found the evidence of persistent volatility in all IDR/USD markets. Using EGARCH model on daily data for the period of 2008 ? 2011, this paper provide several empirical conclusions. First, the persistent volatility in all IDR/USD currency markets is evident. Second, the leverage effects are present in the rupiah exchange rates, indicating that IDR/USD markets have responded more to depreciation than appreciation, which is generally common in emerging market currencies. Third, the evidence of mean spillover are observed to be uni-directional; from NDF to both spot and forward rupiah markets. However, there are two ways return transmission between NDF and forward rate changes in the period of Europe crisis. Fourth, on the volatility, the spillover is only significant from NDF market to spot market for the entire period. However, in the time of crises, there is interdependence between volatility in offshore NDF and onshore spot rate changes, while information transmission is only valid from NDF to forward rate changes, not the other way around. Fifth, the negative spread of domestic interest rate may lead to depreciation pressure on the currency and positive spread may indicate the appreciation pressure.

Suggested Citation

  • Yayat Cadarajat & Alexander Lubis, 2012. "Offshore and Onshore IDR Market: Evidence on Information Spillover," Bulletin of Monetary Economics and Banking, Bank Indonesia, vol. 14(4), pages 343-368, April.
    • Handle: RePEc:idn:journl:v:14:y:2012:i:4a:p:343-368
    DOI: https://doi.org/10.21098/bemp.v14i4.363
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    More about this item

    Keywords

    Foreign Exchange; Non-Deliverable Forward; exchange rate; spillover; EGARCH;
    All these keywords.

    JEL classification:

    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing
    • C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation

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