Exchange Rate Pass Through Viewed from Wholesale Price in Indonesia

Sri Isnowati,Akhmad Kurnia,Fx Sugiyanto,Endang Tjahjaningsih

doi:10.14254/1800-5845/2020.16-3.11

Sri Isnowati, Akhmad Kurnia + Show 2 more

Open Access

https://doi.org/10.14254/1800-5845/2020.16-3.11

Copy DOI

Abstract

This paper explores the effect of changes in exchange rates on domestic prices, known as Exchange Rate pass Through. The data used in this study are data on the economy in Indonesia in the period 1997.3 to 2017.4. The analytical tool used is multiple regression with the Error Correction model approach. Based on the results of the analysis conducted shows that the effect of the exchange rate on the wholesale price index in the long run is greater than the short run. This shows that the effect of the ex-change rate on domestic prices is indirect.The foreign interest rates variabel effect to wholesale price index in the long term, while the domestic interest rates effect in the short and long term. The effect of foreign prices on the wholesale price index is much larger in the short than in the long-term.

Highlights

The interest of economists studying Exchange Rate Pass Through started in the 1970s (Goldberg and Knetter,1997; Ihrig, et al,2006)
This paper explores the effect of changes in exchange rates on domestic prices, known as Exchange Rate pass Through
Based on the analyzed before, it conclued that Exchange Rate Pass Through in the long run is bigger than in the short run.The results of the variables influencing the wholesale prices in the short term are the level of domestic interest rates, foreign prices, exchange rates, forward exchange, and foreign capital

Summary

Introduction

The interest of economists studying Exchange Rate Pass Through started in the 1970s (Goldberg and Knetter,1997; Ihrig, et al,2006). The studies on Exchange Rate Pass Through had been done, but there was no uniformity regarding the definition of "pass through". Most researchers focused on the relationship between the changes in exchange rate to import prices ( Campa and Goldberg, 2005; Herzberg et al, 2003; Parsley,2003). The other researchers linked the changes in exchange rate with consumer price index (Bacchetta and Wincoop,2003; Beirne and Bijsterbosch, 2011; Bouakez and Rebei, 2008; Mirdala, 2014; Takhtamanova, 2010). Some researchers focused on the relationship of exchange rate to export prices (Choudhri and Hakura,2012; Vigfusson et al, 2007)

Objectives

Methods

Conclusion