Exploring the Relationships among Interest Rate, Exchange Rate, and Stock Market in Indonesia

Abstract

Objective - The purpose of this research is to explore the relationships among interest rate, exchange rate, and stock price in Indonesia. Methodology/Technique - This study used data from the Central Bank of Indonesia to empirically test a proposed model of interest rate, exchange rate, and stock price. Findings - The findings confirmed that there are positive volatilities from exchange rate and negative volatility from interest rate. The relationships among interest rate, exchange rate, and stock market excessive volatility a little bit strengthen during economic crises, a study that allows for structural breaks, to account for the effects of sudden macroeconomic shocks, recessions, and financial crises, would be important to empirical literature on Indonesia. Novelty - This study proved that it is important to point out the variance decomposition results also showed that except for volatility in the exchange rate, interest rate, and stock market volatility also seems to explain quite a high proportion of the some variations of the macroeconomic excessive volatility. Type of Paper - Conceptual Keywords: interest rate volatility, exchange rate volatility, stock market volatility, emerging market, Asymmetric ARCH models