The Impact of Rupiah Exchange Rate Shocks on the Trade Balance and Inflation in Indonesia

Exchange rates are one of the macroeconomic instruments that can affect a country's economic stability. Macroeconomic stability, such as inflation and the balance of trade, is highly sensitive to exchange rate dynamics. This study aims to examine the impact of these dynamics/shocks on inflation and Indonesia's trade balance during the period 2023–2026. This study uses secondary data in the form of monthly time series obtained from Statistics Indonesia (BPS) and Bank Indonesia from January 2023 to June 2026. The analytical method used is Structural Vector Autoregression (SVAR). The novelty of this study lies in the time span of the data used from 2023 to June 2026, providing a clear picture of the current dynamics of the Indonesian economy caused by rupiah exchange rate movements. The results of the study indicate that, based on the Impulse Response Function (IRF), in the initial period (period 1), the shock caused by the exchange rate is responded to negatively and significantly by the balance of trade. Meanwhile, the response of the inflation variable in the initial period (periods 1 to 2) is monitored around the equilibrium line with a slight decrease. However, in the 3rd period, the response experiences a significant positive surge, reaching its peak. After this period, the response movement reversed downward into the negative area until the 5th period. This study contributes to adding empirical research on the impact of rupiah exchange rate changes on Indonesia's economic stability, and it is hoped that this research will serve as material for consideration for the Indonesian government in making decisions related to Indonesia's monetary policy