Exchange Rate of Indonesia: Does Rupiah Overshoot?

Abstract

This research attempts to analyze whether Rupiah overshoots when the crisis hit Indonesia in mid of 1998. It also try to find out the fundamental macroeconomic factors that influence exchange rate when economic crisis hit Indonesia. It uses ordinary least square method and also cointegration in order to see long-term relationship. Furthermore, in order to examine the stability of exchange rate when the exchange rate system changed from managed floating to free floating, this paper apply Chow Test. The result shows that when the economic crisis hit Indonesia, Rupiah overshoots and there has been a structural change of exchange rate after 1998