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Fx Intervention Strategy And Exchange Rate Stability In Indonesia

Author

Listed:
  • Solikin M. Juhro

    (Bank Indonesia)

  • Prayudhi Azwar

Abstract

This study aims to measure the effectiveness of foreign exchange (FX) intervention strategy in Indonesia in affecting the rupiah exchange rate stability. Using the instrumental variable (IV) approach to analyze FX intervention strategies from January 2010 to December 2020, we find that there are differences in the effectiveness of intervention in the spot market and the derivative market. Partially, FX intervention is more effective in the spot market than in the derivative market. We find also that intervention strategies carried out simultaneously by Bank Indonesia in the spot and derivative markets effectively improves the effectiveness of policy strategy in affecting rupiah exchange rate stability. Amid increasingly complex challenges facing by central banks in managing exchange rate stability, this study brings fundamental policy implications regarding to the importance of an integrated intervention strategy; not only in spot and derivative markets, but also in bond markets.

Suggested Citation

  • Solikin M. Juhro & Prayudhi Azwar, 2021. "Fx Intervention Strategy And Exchange Rate Stability In Indonesia," Working Papers WP/03/2021, Bank Indonesia.
    • Handle: RePEc:idn:wpaper:wp032021
    as

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    References listed on IDEAS

    as
    1. 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.
    2. Gamboa-Estrada, Fredy, 2019. "The effectiveness of foreign exchange intervention in Latin America: A nonlinear approach to the coordination channel," Global Finance Journal, Elsevier, vol. 40(C), pages 13-27.
    3. Arlyana Abubakar & G.A. Diah Utari & Prayudhi Azwar, 2020. "Early Warning Indicators And Optimal Policies For Mitigating Economic Crises: Evidence From Meta-Analysis," Bulletin of Monetary Economics and Banking, Bank Indonesia, vol. 23(2), pages 269-294, July.
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    More about this item

    Keywords

    Effectiveness; FX Intervention; Spot Market; Derivative Market.;
    All these keywords.

    JEL classification:

    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • O24 - Economic Development, Innovation, Technological Change, and Growth - - Development Planning and Policy - - - Trade Policy; Factor Movement; Foreign Exchange Policy

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