EXCHANGE MARKET PRESSURE IN INDONESIA: A UNIVARIATE MARKOV SWITCHING ANALYSIS
Journal Title: Asian Economic and Financial Review - Year 2012, Vol 2, Issue 5
The aim of this paper is to analyze the nature of exchange market pressure in the case of the Indonesian economy. More specifically, this paper aims to answer whether there is non-linearity or multiple equilibria in the EMPI. The paper relies on a univariate Markov Switching autoregressive model. The model estimation also incorporates procedures such as unit root test, diagnostic test and log likelihood ratio test, focusing on the period from January 1990 to September 2008. This paper found that a 2-state Markov switching AR(6) model of EMPI outperforms a linear autoregressive model in explaining the behavior of EMPI. The findings also suggest that the significant regime dependent intercept confirms the existence of a multiple-equilibria condition in the EMPI. The degree of uncertainty of EMPI in a volatile state was found to be much higher than in the stable state and there was also an inertia characteristic. Due to the inertia characteristic in the EMPI, the monetary authority should take into account the role of economic agents’ expectations in delivering monetary policy to stabilize the exchange rate following significant market pressure in the economy. This paper contributes by providing empirical evidence on the characteristics of EMPI in the context of the Indonesian economy.
Authors and Affiliations
Unggul Heriqbaldi| Department of Economics Faculty of Economics and Business Airlangga University Jl. Airlangga No. 4, Surabaya, Jawa Timur 60286, Indonesia
This research was carried out on the premise that as CSR was becoming popular among corporations in Malaysia, it was important to gauge consumers? beliefs and perspectives about CSR and the CSR issues that mattered to th...
The current practice housing policies of Malaysia and Nigeria did not highlight on the affordability of formal low cost houses. There are no laws, sections or guidelines regulating the affairs of formal low cost housing....
Assessing Determinants of Macroeconomic Policy on Real Convergence and Growth: A Comparative Study of the Eurozone and ASEAN
This study mainly examines the role of macroeconomic policy variables associated with Maastricht Convergence Criteria (MC), using various approaches to analyze comparatively differences in growth and convergence in incom...
ENTERPRISE RISK MANAGEMENT AND VALUE CREATION: INITIAL FINDINGS AMONGST NON-FINANCIAL PUBLIC LISTED COMPANIES IN MALAYSIAN BOURSE
This study aims to highlight whether the implementation of Malaysian Code of Corporate Governance (MCCG) in 2000 and the revise version in 2007 gives impact to enterprise risk management (ERM) and creates value for compa...
APPLICATION OF COMPUTED FINANCIAL RATIOS IN FRAUD DETECTION MODELLING: A STUDY OF SELECTED BANKS IN NIGERIA
The study examines the application of computed financial ratios in fraud detection modeling using existing Financial Ratio Models with a view to detecting their capabilities in application in Nigerian banking system. Dat...
How To Cite
Unggul Heriqbaldi (2012). EXCHANGE MARKET PRESSURE IN INDONESIA: A UNIVARIATE MARKOV SWITCHING ANALYSIS. Asian Economic and Financial Review, 2(5), 603-616. https://europub.co.uk/articles/-A-1810