Abstract
This study aims to examine the symmetric and asymmetric effects of crude oil prices and exchange rate on bond yields in Indonesia. Dubai crude oil prices are used as a proxy for crude oil price data and the IDR/USD exchange rate is used as a proxy for exchange rate. Meanwhile, the 10-year Indonesian bond yields are used as a proxy for bond yields. Data on Dubai crude oil prices, the IDR/USD exchange rate, and the 10-year Indonesian government bond yields are time-series data from January 2007 to April 2019. The results of the test using the ARDL and NARDL models show that (1) in the long-run, neither the crude oil prices nor the exchange rate has symmetric and asymmetric effects on the bond yields, and (2) in the short-run, both of them have symmetric and asymmetric effects on the bond yields.
Highlights
Crude oil is an important commodity for all countries in the world as they need it as an industrial raw material in all sectors of the economy
The second step is to test the cointegration between the crude oil prices, the exchange rate, and the bond yields
In the long run, there is no symmetric influence of the crude oil prices, the exchange rates on the bond yields; (2) the positive crude oil price shock, the negative crude oil price shock, the positive exchange rate positive shock, the negative exchange rate shock and the bond yields are not co-integrated
Summary
Crude oil is an important commodity for all countries in the world as they need it as an industrial raw material in all sectors of the economy. For this reason, changes in crude oil prices can cause changes in prices of manufactured goods, both in the goods sector and in the financial sector. As exchange rates changes, prices of goods can change and the prices of financial market instruments. The exchange rate will be a determining factor of foreign investors’ attitude in buying bonds and selling them back, if their sales can provide a return
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