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The Impact of Capital Reversal and the Threshold of Current Account Deficit on Rupiah

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Listed:
  • M. Noor Nugroho
  • Ibrahim
  • Tri Winarno
  • Meily Ika Permata

Abstract

This paper studies the effects of foreign capital flows toward the exchange rate of rupiah both in total and across types of capital investment. This paper also analyzes the thresholds of current account deficit which significantly affect the rate of Rupiah. The estimation shows the capital outflow affect the rate of Rupiah to depreciate and is larger than the appreciation pressure of capital inflow (except when invested in Certificate of Bank Indonesia, SBI). Furthermore, the rate of Rupiah is more sensitive on government bond (SUN) than stock or SBI. The yield of this government bond largely affects the probability of the capital reversal. Related to the current account, the estimation shows that after exceeds the threshold of USD980 million monthly deficit or about 2% of GDP, the exchange rate will depreciate by 12.7% (m-o-m) with the lag effect of 4 months.

Suggested Citation

  • M. Noor Nugroho & Ibrahim & Tri Winarno & Meily Ika Permata, 2014. "The Impact of Capital Reversal and the Threshold of Current Account Deficit on Rupiah," Bulletin of Monetary Economics and Banking, Bank Indonesia, vol. 16(3), pages 205-230, January.
    • Handle: RePEc:idn:journl:v:16:y:2014:i:3g:p:205-230
    DOI: https://doi.org/10.21098/bemp.v16i3.445
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    References listed on IDEAS

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    1. Sahminan & Ibrahim & Yanfitri, 2009. "Determinants And Sustainability Of Indonesia's Current Account Balance," Working Papers WP/9/2009, Bank Indonesia.
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    More about this item

    Keywords

    Capital flows; exchange rate; current account deficit; threshold.;
    All these keywords.

    JEL classification:

    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements

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