Does the source of oil shocks matter to exchange rate dynamics? Insights from Indonesia's dual role as an oil exporter and importer

Oil prices are endogenously determined by oil demand and supply shocks, resulting in various impacts on exchange rates across different periods. The contribution of this article is to assess the effects of oil supply, aggregate demand, and oil-specific demand shocks on Indonesia's exchange rate. To accurately assess these impacts while considering Indonesia's dual roles in the oil market, we divide the analysis period into two distinct periods: the net oil exporting phase from January 1994 to December 2003 and the net oil importing phase from January 2004 to February 2023. Our findings reveal that during the net oil exporting phase, the impact of three oil shocks on Indonesia's currency is negligible in the short and long term. Conversely, during the net oil importing phase, our research demonstrates that oil-specific demand shocks significantly influence Indonesia's short- and long-term currency. In contrast, oil supply shocks primarily affect the short-term. Aggregate demand shocks, however, have minimal influence on the currency in either timeframe. Furthermore, our research provides compelling evidence that supports the presence of long-term asymmetry in all three shocks on Indonesia's currency. However, we do not identify any evidence of short-term asymmetry effects for any of the three oil shocks.