Munich Personal RePEc Archive

Estimating Equilibrium Real Exchange Rates of the Rupiah

Sahminan, Sahminan (2005): Estimating Equilibrium Real Exchange Rates of the Rupiah.

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Abstract

In this paper we estimate equilibrium real exchange rate of the rupiah. Using quarterly data from 1993:Q1 to 2005:Q2, we find that productivity differential, terms of trade, and net foreign assets significantly determine the long-run equilibrium real exchange rate of the rupiah. In the short run, the change in the equilibrium real exchange rate is significantly determined by terms of trade, productivity differentials, net foreign assets, inflation differentials, and interest rate differentials. Based on the estimates of the equilibrium real exchange rate we find that in the period shortly before the 1997’s crisis, the actual real exchange rate of the rupiah overvalued substantially relative the equilibrium real exchange rate, and since 2004 the rupiah tends to overvalue, but to the extent that lower than the overvaluation before the crisis.

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