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Foreign Exchange Expectations in Indonesia: Regime Switching Chartists & Fundamentalists Approach

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  • Ferry Syarifuddin
  • Noer Azam Achsani
  • Dedi Budiman Hakim
  • Toni Bakhtiar

Abstract

In this research, the effect of central bank intervention within a heterogeneous expectations exchange rate model, is investigated. The empirical evidence is conducted by applying a Markov switching approach to daily USD/IDR exchange rate, intervention data of Bank Indonesia from 2006 to 2012. The results are supporting both chartists and fundamentalist regimes. It is shown that the two regimes are persistent. Meanwhile, Bank Indonesia’s foreign-exchange intervention has been able to drive the USD/IDR to its fundamentalist rule. However, Bank Indonesia efforts to exert a stabilizing e?ect of foreign exchange interventions, the result are inconclusive.

Suggested Citation

  • Ferry Syarifuddin & Noer Azam Achsani & Dedi Budiman Hakim & Toni Bakhtiar, 2014. "Foreign Exchange Expectations in Indonesia: Regime Switching Chartists & Fundamentalists Approach," Bulletin of Monetary Economics and Banking, Bank Indonesia, vol. 17(2), pages 197-220, October.
    • Handle: RePEc:idn:journl:v:17:y:2014:i:2g:p:197-220
    DOI: https://doi.org/10.21098/bemp.v17i2.49
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    References listed on IDEAS

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    1. Westerhoff, Frank, 2003. "Speculative markets and the effectiveness of price limits," Journal of Economic Dynamics and Control, Elsevier, vol. 28(3), pages 493-508, December.
    2. Vigfusson, Robert, 1997. "Switching between Chartists and Fundamentalists: A Markov Regime-Switching Approach," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 2(4), pages 291-305, October.
    3. Perry Warjiyo, 2013. "Indonesia: stabilizing the exchange rate along its fundamental," BIS Papers chapters, in: Bank for International Settlements (ed.), Sovereign risk: a world without risk-free assets?, volume 73, pages 177-187, Bank for International Settlements.
    4. Manzan, Sebastiano & Westerhoff, Frank, 2005. "Representativeness of news and exchange rate dynamics," Journal of Economic Dynamics and Control, Elsevier, vol. 29(4), pages 677-689, April.
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    Cited by:

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    More about this item

    Keywords

    exchange rates; foreign-exchange intervention; switching regression;
    All these keywords.

    JEL classification:

    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • C24 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Truncated and Censored Models; Switching Regression Models; Threshold Regression Models

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