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The weak rupiah: catching the tailwinds and avoiding the shoals

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  • Willem Thorbecke

    (Research Institute of Economy, Trade and Industry and Center for International Development)

Abstract

The Indonesian rupiah depreciated 50% between July 2011 and February 2020. Blanchard et al. (Are capital inflows expansionary or contractionary? Theory, policy implications, and some evidence. NBER Working Papers 21619, National Bureau of Economic Research, Cambridge, MA, 2015) showed that capital outflows from emerging markets can reduce output by increasing the cost of financial intermediation and can increase output by increasing net exports. Regression results indicate that Indonesian banks are exposed to depreciations, but that exports are not stimulated by depreciations. The findings also indicate that Indonesia’s export price index is positively correlated with commodity prices and negatively correlated with manufactured goods prices. Exporting more manufactures would reduce Indonesia’s exposure to volatile commodity prices and allow depreciations to stimulate exports. This paper considers several steps that Indonesia could take to increase its manufacturing exports.

Suggested Citation

  • Willem Thorbecke, 2021. "The weak rupiah: catching the tailwinds and avoiding the shoals," Journal of Social and Economic Development, Springer;Institute for Social and Economic Change, vol. 23(3), pages 521-539, December.
    • Handle: RePEc:spr:jsecdv:v:23:y:2021:i:3:d:10.1007_s40847-020-00111-3
    DOI: 10.1007/s40847-020-00111-3
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    More about this item

    Keywords

    Indonesia; Exchange rate elasticities; Exchange rate exposure; Foreign direct investment; Export diversification; Technology assimilation;
    All these keywords.

    JEL classification:

    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • F10 - International Economics - - Trade - - - General

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