<abstract xmlns="http://www.w3.org/1999/xhtml">

<p>This paper employs various GARCH-type models and the daily data from 3 July 2006 to 30 June 2021 to examine the effect of crude oil prices and stock price index on exchange rates for Indonesia, the largest oil producer in Southeast Asia. Since the share markets and oil prices are very volatile, testing the stability of the parameters or system is desirable. We achieve this by using the Nyblom’s fluctuations test and account for the structural break associated with the fluctuations. Findings reveal that lower oil price return leads the Indonesian currency per US dollar to depreciate. In addition, we find that stock return has negative and significant relation with exchange rates. This lends support to the portfolio balance effect in which a decrease in stock prices leads to a depreciation of Indonesian Rupiah against the US dollar. Evidence from EGARCH model shows that shocks to the volatility of exchange rate have a symmetrical effect. Our results suggest that as lower oil prices and stock prices contributes to depreciation of Indonesia rupiah against USD, an appropriate monetary policy may require adjustment of interest rates to resist the exchange rate fluctuations without being detrimental to the banking system.</p>
</abstract>

This paper employs various GARCH-type models and the daily data from 3 July 2006 to 30 June 2021 to examine the effect of crude oil prices and stock price index on exchange rates for Indonesia, the largest oil producer in Southeast Asia. Since the share markets and oil prices are very volatile, testing the stability of the parameters or system is desirable. We achieve this by using the Nyblom’s fluctuations test and account for the structural break associated with the fluctuations. Findings reveal that lower oil price return leads the Indonesian currency per US dollar to depreciate. In addition, we find that stock return has negative and significant relation with exchange rates. This lends support to the portfolio balance effect in which a decrease in stock prices leads to a depreciation of Indonesian Rupiah against the US dollar. Evidence from EGARCH model shows that shocks to the volatility of exchange rate have a symmetrical effect. Our results suggest that as lower oil prices and stock prices contributes to depreciation of Indonesia rupiah against USD, an appropriate monetary policy may require adjustment of interest rates to resist the exchange rate fluctuations without being detrimental to the banking system.

Modelling the Impact of Crude Oil Prices and Stock Price Index on Indonesia’s Exchange Rates

Studies in Business and Economics

This work is licensed under the Creative Commons Attribution-NonCommercial-NoDerivatives 3.0 License.

This paper employs various GARCH-type models and the daily data from 3 July 2006 to 30 June 2021 to examine the effect of crude oil prices and stock price...

Modelling the Impact of Crude Oil Prices and Stock Price Index on Indonesia’s Exchange Rates

Publicado en línea: 11 ene 2024

Páginas: 244 - 260

DOI: https://doi.org/10.2478/sbe-2023-0057

Palabras clave
Exchange rate, Crude oil price, Stock price index, GARCH-type models, Indonesia

© 2023 Jimoh Olajide Raji et al., published by Sciendo

This work is licensed under the Creative Commons Attribution-NonCommercial-NoDerivatives 3.0 License.

Modelling the Impact of Crude Oil Prices and Stock Price Index on Indonesia’s Exchange Rates

Publicado en línea: 11 ene 2024

Páginas: 244 - 260

DOI: https://doi.org/10.2478/sbe-2023-0057

Palabras claveExchange rate, Crude oil price, Stock price index, GARCH-type models, Indonesia

© 2023 Jimoh Olajide Raji et al., published by Sciendo

This work is licensed under the Creative Commons Attribution-NonCommercial-NoDerivatives 3.0 License.

Palabras clave
Exchange rate, Crude oil price, Stock price index, GARCH-type models, Indonesia