Decades of rupiah fluctuations: What are the contributing factors? (Markov switching regression approach)
DOI:
https://doi.org/10.24914/jeb.v29i1.19438Keywords:
Exchange rate fluctuation, markov switching regression, economic regime, internal factors, external factorsAbstract
The Rupiah exchange rate is a key macroeconomic indicator that reflects a country’s economic stability and is influenced by various internal and external factors. This study aims to analyze the effects of inflation, domestic interest rates, and the money supply as internal factors, as well as foreign direct investment (FDI), the Federal Funds Rate, and global oil prices as external factors on the Rupiah exchange rate against the United States dollar. This research employs a quantitative approach using secondary data. The analytical method employed is Markov Switching Regression (MSR), which is used to identify differences in exchange rate behavior under two distinct economic conditions: a stable regime and a crisis regime. The results indicate that in the stable regime, inflation and the money supply have a significant effect on depreciating the Rupiah, while domestic interest rates significantly contribute to Rupiah appreciation. In the crisis regime, only the money supply shows a substantial impact on alleviating exchange rate pressure. Meanwhile, the Federal Funds Rate and global oil prices consistently have a significant depreciating effect on the Rupiah across both regimes, whereas FDI does not exhibit a significant impact.
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