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Estimating Equilibrium Real Exchange Rates of the Rupiah

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  • Sahminan, Sahminan

Abstract

In this paper we estimate equilibrium real exchange rate of the rupiah. Using quarterly data from 1993:Q1 to 2005:Q2, we find that productivity differential, terms of trade, and net foreign assets significantly determine the long-run equilibrium real exchange rate of the rupiah. In the short run, the change in the equilibrium real exchange rate is significantly determined by terms of trade, productivity differentials, net foreign assets, inflation differentials, and interest rate differentials. Based on the estimates of the equilibrium real exchange rate we find that in the period shortly before the 1997’s crisis, the actual real exchange rate of the rupiah overvalued substantially relative the equilibrium real exchange rate, and since 2004 the rupiah tends to overvalue, but to the extent that lower than the overvaluation before the crisis.

Suggested Citation

  • Sahminan, Sahminan, 2005. "Estimating Equilibrium Real Exchange Rates of the Rupiah," MPRA Paper 94555, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:94555
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    References listed on IDEAS

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    1. Maurice Obstfeld & Kenneth S. Rogoff, 1996. "Foundations of International Macroeconomics," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262150476, April.
    2. Menzie D. Chinn, 2000. "The Usual Suspects? Productivity and Demand Shocks and Asia–Pacific Real Exchange Rates," Review of International Economics, Wiley Blackwell, vol. 8(1), pages 20-43, February.
    3. John Williamson, 1994. "Estimating Equilibrium Exchange Rates," Peterson Institute Press: All Books, Peterson Institute for International Economics, number 17, April.
    4. Paul Hallwood & Ronald MacDonald, 2008. "International Money and Finance," Working papers 2008-02, University of Connecticut, Department of Economics.
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    Cited by:

    1. Jongwanich, Juthathip, 2009. "Equilibrium Real Exchange Rate, Misalignment, and Export Performance in Developing Asia," ADB Economics Working Paper Series 151, Asian Development Bank.
    2. Kim Edwards & Sahminan, 2008. "Exchange Rate Movements in Indonesia: Determinants, Effects, and Policy Challenges," Working Papers WP/25/2008, Bank Indonesia.
    3. Nikolaos Giannellis & Minoas Koukouritakis, 2018. "Currency Misalignments in the BRIICS Countries: Fixed Vs. Floating Exchange Rates," Open Economies Review, Springer, vol. 29(5), pages 1123-1151, November.
    4. MASUJIMA Yuki, 2015. "Assessing Asian Equilibrium Exchange Rates as Policy Instruments," Discussion papers 15038, Research Institute of Economy, Trade and Industry (RIETI).

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    More about this item

    Keywords

    Equilibrium Real Exchange Rate; Misalignment; Indonesian Rupiah;
    All these keywords.

    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • F31 - International Economics - - International Finance - - - Foreign Exchange

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