The Indonesian economic crisis in the period of 1997 and 2008 caused by the depreciation of the rupiah and volatile had an adverse impact on the Indonesian economy. This study aims to analyze whether monetary policy is effective for the stabilization of the rupiah using the monetary approach model of monetary exchange rate determination. The monetary model explains that the exchange rate equilibrium is determined by money supply, real income, and price level. The analytical tool used in this study is the error correction model (ECM) to avoid the problem of regression in both short and long term. The results show that the money supply has an effect on the rupiah exchange rate in the short and long term. It indicates that monetary policy through the money supply control instrument can be used to stabilize the rupiah exchange rate.
Monetary model, economic crisis, exchange rate stabilization, monetary policy
Cite this paper
Agus Budi Santosa, Sri Nawatmi, Agung Nusantara. (2020) Is Monetary Policy Effective for Rupiah Exchange Rate Stabilization? An Analysis of Exchange Rate Determination with Monetary Approach. International Journal of Economics and Management Systems, 5, 162-168
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