Abstract
This study analyzes the effect of the Exchange Rate and the Dow Jones Industrial Average on the Jakarta Composite Index during a downtrend due to the COVID-19 pandemic. The impulse response function was used to analyze the permanent effects on an exogenous shock variable on one of them. The study results prove a significant effect of the exchange rate on the Jakarta Composite Index. The same result showed that the most the weakening of the exchange rate of the Rupiah, the Jakarta Composite Index tends to fall. Besides, the Dow Jones Industrial Average harms the Jakarta Composite Index. In the long run, the response given by the Jakarta Composite Index showed a negative level. The USD/IDR exchange rate weakening was very influential on the Jakarta Composite Index. Otherwise, the weakening of the Rupiah exchange rate has led to the decrease of the Jakarta Composite Index. Monetary authorities should reckon on the stock price movements to control the stability of monetary exchange. Keywords: Jakarta Composite Index, Dow Jones Industrial Average, exchange rate, COVID-19, monetary policies. DOI: 10.7176/EJBM/13-14-03 Publication date: July 31 st 2021
Highlights
1.Introduction Entitled Black Swan Event by Renjen(2020) and close to the one that caused the SARS (Severe Acute Respiratory Syndrome) epidemic, which killed 774 people worldwide in 2002-2003 (Park, 2020), the COVID-19, result of the disease caused by severe acute respiratory syndrome coronavirus SARS-COV-2(Singhal 2020), has had a detrimental effect on global health systems with a ripple effect on all aspects of human life
The results indicated that the Jakarta Composite Index has positively decreased
If the data used is not stationary at the level, the data must be changed to the first difference to get stationary data, the VAR model will be combined with the error correction model to become Cointegrated VAR or commonly known as the Vector Error Correction Model
Summary
Entitled Black Swan Event by Renjen(2020) and close to the one that caused the SARS (Severe Acute Respiratory Syndrome) epidemic, which killed 774 people worldwide in 2002-2003 (Park, 2020), the COVID-19, result of the disease caused by severe acute respiratory syndrome coronavirus SARS-COV-2(Singhal 2020), has had a detrimental effect on global health systems with a ripple effect on all aspects of human life. The pandemic is much more than a health crisis and an unprecedented socioeconomic crisis, putting pressure on each country's effects. It has devastating social, economic, and political impacts which will leave deep scars which, no doubt, will be slow to emerge. The April 2020 global financial stability has reported that efforts to fight the crisis are causing historically unprecedented economic and financial repercussions worldwide. Unlike the 2008 financial crisis, the current crisis has generated enormous uncertainty in the world. Oskoui (2020) emphasized a disruption of global production chains, a sharp slowdown in economic activity and a collapse of major financial markets Unlike the 2008 financial crisis, the current crisis has generated enormous uncertainty in the world. Oskoui (2020) emphasized a disruption of global production chains, a sharp slowdown in economic activity and a collapse of major financial markets
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