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Information Flow Between The Us Dollar-Rupiah Exchange Rates

Author

Listed:
  • Wee-Yeap Lau

    (University of Malaya)

  • Tien-Ming Yip

    (University of Malaya)

Abstract

This study investigates the information flow between non-deliverable forward (NDF), spot, and forward US dollar–rupiah exchange rates during the post-Quantitative Easing (QE) period. Our results show a unidirectional information flow from NDF to the spot and forward rates in the post-QE period. We also find that the Indonesian government securities (IGS) played a vital role during the QE period, while international reserves preceded the US dollar–rupiah spot, forward, and NDF exchange rates post-QE. Hence, international reserves became an important policy variable in managing the currency value. Our finding redefines the role of IGS as a policy tool. As a policy suggestion, the Bank Indonesia should maintain a sufficient amount of foreign reserves to mitigate foreign exchange risks of the rupiah.

Suggested Citation

  • Wee-Yeap Lau & Tien-Ming Yip, 2020. "Information Flow Between The Us Dollar-Rupiah Exchange Rates," Bulletin of Monetary Economics and Banking, Bank Indonesia, vol. 23(3), pages 439-460, October.
    • Handle: RePEc:idn:journl:v:23:y:2020:i:3g:p:439-460
    DOI: https://doi.org/10.21098/bemp.v23i3.918
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    More about this item

    Keywords

    Spot; Forward; Non-deliverable forward; Quantitative easing; Rupiah; Exchange rates;
    All these keywords.

    JEL classification:

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

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