Measuring rupiah exchange rates per US Dollar by using purchasing power parity approach (1970.01-1999.06)

SETIATI, Sunarwin Kartika, Dr. Supriyadi, MSc

2002 | Tesis | Magister Manajemen

The value of rupiah in the crisis period sharply weakened and moved in the unpredictable pattern. Decreasing the exchange rate of rupiah simultaneously as fast as increasing the inflation rate, when rupiah was unworthy and the monetary instrument did not attract anymore in controlling the movement of rupiah exchange rate. This 1eds to measure the properly value of rupiah whether the weakness does due to the decreasing purchasing power of rupiah. One of the most popular theories to identify the price-based measure of the underlying true equilibrium rate is the purchasing power parity (PPP) theory The PPP theory states that the exchange rate between two countries ’ currecies equals to the ratio of the countries price levels. Chosen rupiah against the US dollar is because rupiah has the largest volatility in US dollar. The research uses two kind of national price index, i.e., the wholesule price indices (WPIs) and the consumer price indices (CPls). Using the long run PPP hypothesis is intended to explore the equilibrium relationship in rupiah exchange rute bused on the pice measurement. Because including un interval of time is necessary in analyzing the economic variables, it should use the dynamic model. One of the popular models is error correction mechanism (ECM) that consists of cointegration approatch and ECM approach. The cointegration examination applied in the reseuarch is the Augmented Engle-Granger. The evidence shows that the long run PPP hypothesis is valid to measure nominal exchange rates in rupiah per US dollar bused on both the national price indices, those ure the WPIs und the CPIs. Thus, the HO slate that there is no statistically significant in equilibrium relutionship between rupiah nominal exchange rates and prices is rejected. Where the disequilibrium in PPP exchange rule of rupiah bused on the WPIs is corrected in the next month, then that bused on the CPIs is corrected in the next six months. Both of overvaluation and undervaluation of rupiah occur during the time period observed. This research approves of the world belief that the value of Indonesia currency was overvaluation during the period of managed floating exchange rate system prevailed, that is time before the crisis.

Kata Kunci : Nilai Tukar Uang,Rupiah dan Dollar