Determinant Of Real Exchange Rate In Indonesia: Error Correction Model Approach

Abstract

The aim of this study is to examine the short-term and long-term relationship explain the shock of the real exchange rate in Indonesia. The analysis model is used cointegration of Johansen-juselius and error correction model (ECM). Data is used by time series from 1982 to 2017. The findings of this study found that trade openness, current account balance, and inflation significantly affected the real exchange rate. In the short term, inflation and foreign investment caused real exchange rate shocks in Indonesia directly. It is thus recommended amongst others that policies have to be put in place to stabilize the problem of inflation