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Predictors Of Exchange Rate Returns: Evidence From Indonesia

Author

Listed:
  • Bayu Arie Fianto

    (Universitas Airlangga)

  • Nisful Laila

    (Universitas Airlangga)

  • Raditya Sukmana

    (Universitas Airlangga)

  • Muhammad Madyan

    (Universitas Airlangga)

Abstract

Using historical time-series data, we investigate Indonesia’s exchange rate return predictability. We employ nine predictors, namely stock price, gold price, oil price, commodity price, inflation, balance of payment, total exports, the US T-bill rate, and the US federal fund rate. With historical data, we fail to discover any evidence that these factors predict Indonesia’s exchange rate returns. However, we find that oil price, commodity price, inflation, and the US T-bill rate can significantly predict Indonesia’s exchange rate returns during the Asian financial crisis. Our findings key implication is that it is the external factors that dominate the evolution of Indonesia’s exchange rate, and inflation rate is the only domestic factor for policy makers to control.

Suggested Citation

  • Bayu Arie Fianto & Nisful Laila & Raditya Sukmana & Muhammad Madyan, 2020. "Predictors Of Exchange Rate Returns: Evidence From Indonesia," Bulletin of Monetary Economics and Banking, Bank Indonesia, vol. 23(2), pages 239-252, July.
    • Handle: RePEc:idn:journl:v:23:y:2020:i:2e:p:239-252
    DOI: https://doi.org/10.21098/bemp.v23i1.1169
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    Citations

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    Cited by:

    1. Khyati Kathuria & Nand Kumar, 2022. "Pandemic‐induced fear and government policy response as a measure of uncertainty in the foreign exchange market: Evidence from (a)symmetric wild bootstrap likelihood ratio test," Pacific Economic Review, Wiley Blackwell, vol. 27(4), pages 361-379, October.
    2. Fan Zhang & Paresh Kumar Narayan & Neluka Devpura, 2021. "Has COVID-19 changed the stock return-oil price predictability pattern?," Financial Innovation, Springer;Southwestern University of Finance and Economics, vol. 7(1), pages 1-10, December.

    More about this item

    Keywords

    Exchange rate; Predictors; Inflation; External factors; Indonesia;
    All these keywords.

    JEL classification:

    • F30 - International Economics - - International Finance - - - General
    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • F37 - International Economics - - International Finance - - - International Finance Forecasting and Simulation: Models and Applications

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