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August 12, 2025

Analysis of Exchange Rate Decomposition in Indonesia: A Vecm Approach

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Authors

NLNadzwa Amalia LutviDADwi AprilianaRKRifki Khoirudin

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Overview

Analysis reveals long-term investment impacts exchange rate dynamics in Indonesia, highlighting its role in PPP theory.

Key Points

  • Investment significantly impacts the exchange rate in the long run, whereas GDP, remittances, and inflation have no significant effect.
  • Short-run analysis shows that investment negatively affects the exchange rate, indicating sensitivity to market conditions.
  • Using a Vector Error Correction Model, the study explores the relationship of exchange rate with key economic variables over the 2011-2023 period.
  • The findings underscore the significance of investment for exchange rate stability, supporting Purchasing Power Parity theory.

Cite This Study

Lutvi et al. (2025) studied this question.

synapsesocial.com/papers/68af6216ad7bf08b1eae39echttps://doi.org/10.32424/icsema.1.1.6
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