Money Supply, Interest Rate and Exchange Rate Targets: Conflicting Issues in an Open Economy

1993 ◽  
pp. 171-185
Author(s):  
Rüdiger Pohl
Keyword(s):  
Exchange Rate ◽  
Interest Rate ◽  
Money Supply ◽  
Open Economy

scholarly journals PENGARUH INFLASI, JUB, SBI, SERTA CADANGAN DEVISA TERHADAP NILAI TUKAR RUPIAH TAHUN 2017-2020

2021 ◽  
Vol 6 (2) ◽  
pp. 60-72
Author(s):  
Duwik Tri Utami ◽  
Fitrah Sari Islami
Keyword(s):  
Exchange Rate ◽  
Interest Rate ◽  
Money Supply ◽  
Foreign Exchange ◽  
Open Economy ◽  
The United States ◽  
Foreign Exchange Reserves ◽  
Short Term ◽  
The Exchange Rate

Indonesia's economy refers to an open economy. In conducting international trade, countries must compare their currencies with currencies belonging to other countries. Where, the United States currency, namely the dollar, is still the standard of world exchange rates and is used in international transactions. The effect of fluctuations in the exchange rate of the rupiah with the dollar is the occurrence of depreciation or appreciation which will affect Indonesia's economic activities. The purpose of this study is to determine the effect of inflation, the money supply (M2), the SBI interest rate, and foreign exchange reserves on the rupiah exchange rate in the short and long term. The variables that are thought to be able to influence changes in the rupiah exchange rate are the inflation rate, the money supply (M2), the SBI interest rate, and foreign exchange reserves. This research was conducted during January 2017 to December 2020, using the Error Correction Model (ECM). The result is a long-term and short-term relationship. In the short term, foreign exchange reserves and the money supply (M2) significantly affect the exchange rate. Meanwhile, in the long term, the SBI interest rate, money supply (M2), and foreign exchange reserves significantly affect the exchange rate.

scholarly journals Assessing Volatilities of Monetary Policy and their Effects on the Islamic and Conventional Stock Markets in Indonesia

2018 ◽  
Vol 7 (2) ◽  
pp. 161-172
Author(s):  
M Shabri Abd Majid
Keyword(s):  
Monetary Policy ◽  
Exchange Rate ◽  
Interest Rate ◽  
Interest Rates ◽  
Money Supply ◽  
Open Economy ◽  
Stock Markets ◽  
Monetary Shocks ◽  
Policy Makers ◽  
The Us

The main objective of this study is to empirically assess the volatilities of the monetary policy instruments and their effects on the Indonesian Islamic and conventional stock market. The changes in exchange rate, interest rates, and money supply and their effects on the stock markets are investigated using the using the Generalized Autoregressive Conditional Heteroskedasticity frameworks. As a big-open economy, the capital market of Indonesia is vulnerable to the global monetary shocks changes, thus the US federal funds rate is also incorporated into the GARCH model. The study documented that, with the exception of the US interest rate, the volatilities of all monetary policy variables of interest rate, exchange rate, and money supply were documented affecting the volatilities of both Islamic and conventional stock markets. These findings imply that the volatilities of Islamic and conventional stock markets have similar determinants, thus to stabilize the markets, the investigated monetary policy variables should be controlled for by the policy-makers. Any monetary policy design imposed by the policy-makers would have a similar effect on both conventional and Islamic stocks in Indonesia.DOI: 10.15408/sjie.v7i2.7352

The response of macroeconomic aggregates to monetary policy shocks in Pakistan

2014 ◽  
Vol 6 (4) ◽  
pp. 314-330 ◽  
Author(s):  
Abdul Rashid ◽  
Zainab Jehan
Keyword(s):  
Monetary Policy ◽  
Exchange Rate ◽  
Interest Rate ◽  
Error Correction ◽  
Money Supply ◽  
Open Economy ◽  
Output Growth ◽  
Content Type ◽  
Long Run ◽  
Macroeconomic Aggregates

Purpose – This paper aims to empirically examine how shocks to monetary policy measures (the short-term nominal interest rate and broad money supply) affect macroeconomic aggregates, namely, output growth of the economy, national price levels and the nominal exchange rate. Design/methodology/approach – Johansen’s (1995) cointegration technique and error correction models are used to explore the long-run relationship among variables. To investigate how macroeconomic aggregates respond to a one-standard deviation shock to the underlying monetary measures, the authors estimate impulse response functions based on error correction models. The study uses quarterly data covering the period 1980-2009. Findings – The results provide evidence that there is a long-run stable relationship between the authors' monetary measures and the underlying macroeconomic aggregates. They also find that the industrial production adjusts at a faster speed relative to commodity prices and the exchange rate over the examined period. Further, they show that the short-term interest rate has relatively stronger effects on output as compared to broad money supply, whereas prices and exchange rates adjust more quickly to their long-run equilibrium when money supply is used as a measure of monetary policy. Finally, the authors find significant evidence of a price puzzle regardless of whether they consider a closed or an open economy case. However, an initial appreciation of exchange rate is observed in response to a one-standard deviation shock to money supply, indicating the overshooting hypothesis phenomenon. Practical implications – The findings of the analysis suggest that the interest rate-oriented monetary policy is more effective when the monetary authorities’ objective is to enhance the output growth of the economy. However, in case of inflation targeting, the broad money supply seems a more appropriate instrument. Our findings also suggest that the monetary policy has a significant role in stabilizing both real and nominal sectors of the economy. Originality/value – The main value of this paper is to examine the significance of monetary policy for a developing and relatively small open economy, namely, Pakistan. The authors use the error correction model, which improves the estimation by accounting for the long-run association. They also take into account the world oil prices by including the world commodity price index as a control variable in their empirical investigation. Finally, they utilize quarterly data rather than annual, and they cover a relatively recent sample period.

The Role of Different Channels in Transmitting Monetary Policy into Output and Price in Vietnam

2015 ◽  
pp. 20-40
Author(s):  
Vinh Nguyen Thi Thuy
Keyword(s):  
Monetary Policy ◽  
Exchange Rate ◽  
Interest Rate ◽  
Money Supply ◽  
Monetary Transmission ◽  
Impulse Response Functions ◽  
Short Run ◽  
The Exchange Rate ◽  
The Interest Rate ◽  
Interest Rate Channel

The paper investigates the mechanism of monetary transmission in Vietnam through different channels - namely the interest rate channel, the exchange rate channel, the asset channel and the credit channel for the period January 1995 - October 2009. This study applies VAR analysis to evaluate the monetary transmission mechanisms to output and price level. To compare the relative importance of different channels for transmitting monetary policy, the paper estimates the impulse response functions and variance decompositions of variables. The empirical results show that the changes in money supply have a significant impact on output rather than price in the short run. The impacts of money supply on price and output are stronger through the exchange rate and credit channels, but however, are weaker through the interest rate channel. The impacts of monetary policy on output and inflation may be erroneous through the equity price channel because of the lack of an established and well-functioning stock market.

Macroeconomic Determinants of Stock Market Prices in Nepal

2020 ◽  
Vol 2 (1) ◽  
pp. 56-65
Author(s):  
Bhim Prasad Panta
Keyword(s):  
Exchange Rate ◽  
Interest Rate ◽  
Stock Market ◽  
Money Supply ◽  
Developing Economies ◽  
Annual Data ◽  
Economic Variables ◽  
Market Prices ◽  
Ardl Model ◽  
Long Run

Background: Stock market plays a crucial role in the financial system of a country. It can be viewed as a channel through which resources are properly channelized. It enables the governments and industry to raise long-term capital for financing new projects. The stock markets of developing economies are likely to be sensitive to various macro-economic factors such as GDP, imports, exports, exchange rates etc., when there is high demand on financial products, as a constituent of financial market, ultimately stock market needs to develop. Many factors can be a signal to stock market participants to expect a higher or lower return when investing in stock and one of these factors are macroeconomic variables and thus, macro-economic variables tend to effect on stock market development. Objective: This study examines the linkage between stock market prices (NEPSE index) and five macro-economic variables, namely; real GDP, broad money supply, interest rate, inflation, and exchange rate using ARDL model and to explain the behavior of the Nepal Stock Exchange Index. Methods: The ECM which is delivered from ARDL model through simple linear transformation to integrate short run adjustments with long run equilibrium without losing long run information. The analysis has been done by using 25 years' annual data from 1994 to 2019. Findings: The result suggests that the fluctuation of Nepse Index in long run is strongly associated with broad money supply, interest rate, inflation, and exchange rate. Conclusion: Though Nepalese stock market is in primitive stage, broad money supply, interest rate, inflation and exchange rate are major factors affecting stock market price of Nepal. So, policies and strategies should be made and directed taking these in to consideration. Implication: The findings of research can be helpful to understand the behavior of Nepalese stock market and develop policies for market stabilization.

scholarly journals Does E-Money Affect Inflation In Indonesia

2021 ◽  
Vol 19 (1) ◽  
pp. 1
Author(s):  
Andres Dharma Nurhalim
Keyword(s):  
Exchange Rate ◽  
Interest Rate ◽  
Exchange Rates ◽  
Money Supply ◽  
Quantitative Approach ◽  
Electronic Money ◽  
Factors Affecting ◽  
Main Factors ◽  
The Interest Rate ◽  
Main Components

The purpose of this study aims to explain the effect of electronic money on inflation and how much influence it has on the Indonesian economy. In this study the authors used a quantitative approach. The variables used are inflation, electronic money, exchange rate, money supply (M1), and BI interest rate. Result: The previous money supply (LQMprev) and the interest rate (BI Rate) were the main factors affecting inflation. In this result, e-money and exchange rates are not the main components driving inflation. Based on SPPS processing using regression, e-money and exchange rates do not have a significant effect on inflation in Indonesia, but LQMprev has a significant effect on inflation. From the results of this study it is still too early to analyze the effect of e-money on inflation because it is still relatively new in Indonesia.

scholarly journals Analisis Inflasi di Indonesia (Suatu Pendekatan Model Dinamik)

2018 ◽  
Vol 7 (2) ◽  
pp. 85
Author(s):  
Afrizal Afrizal
Keyword(s):  
Exchange Rate ◽  
Interest Rate ◽  
Error Correction ◽  
Money Supply ◽  
Correction Term ◽  
Research Data ◽  
Cointegration Test ◽  
The Exchange Rate ◽  
The Interest Rate

This study aims to determine the magnitude of the effect of the money supply, the exchange rate of rupiah (exchange rate) and the interest rate on inflation in Indonesia during the period 2000.12016.4. The analysis tools used for this research data are: unit root test, integration degree test, cointegration test, error correction model / ECM. The results showed that all staioner research data at level 1 (first difference) based on cointegration test showed that the variables observed in this study co-integration or have long-term relationship. The ECM model used is valid, as indicated by the error correction term (ECT) coefficient is significant. In the short run the money supply, the exchange rate of rupiah (exchange rate) and the interest rate is not significant to the inflation rate, but in the long term is significant.

Cross-border merger and acquisition activities in Asia: the role of macroeconomic factors

2018 ◽  
Vol 35 (2) ◽  
pp. 307-329 ◽  
Author(s):  
Yusnidah Ibrahim ◽  
Jimoh Olajide Raji
Keyword(s):  
Exchange Rate ◽  
Interest Rate ◽  
Money Supply ◽  
Inflation Rate ◽  
Merger And Acquisition ◽  
The Philippines ◽  
Macroeconomic Factors ◽  
Content Type ◽  
Cross Border ◽  
Asean Countries

Purpose This paper aims to examine the influence of key macroeconomic factors on the inward and outward acquisition activities of six ASEAN (ASEAN: Association of Southeast Asian Nations) countries, namely, Indonesia, Malaysia, the Philippines, Singapore, Thailand and Vietnam, over the 1996-2015 period. Design/methodology/approach The study uses alternative panel data methods, including pooled mean group, mean group and dynamic fixed-effect estimators. Findings The results indicate that gross domestic product (GDP), interest rate, exchange rate, money supply and inflation rate are the most important macroeconomic factors explaining the trends of cross-border mergers and acquisition outflows of the ASEAN-6 countries. Specifically, GDP, money supply and inflation rate have significant positive relationships with acquisition outflows, while interest rate and exchange rate exert significant negative influence. On the other hand, the authors find four significant macroeconomic factors explaining the trends of the inward acquisitions. Essentially, GDP, money supply and inflation rate have significant positive impacts on inward acquisitions, while the impact of exchange rate is negatively significant. Research limitations/implications Unavailability of data limits this study to pool six sample countries from ASEAN, instead of ten representative member countries. Practical implications The results of this study can signal to firms or investors, involving in cross-border mergers and acquisitions, where to direct foreign resources flows. Moreover, having the knowledge about the relative levels of market size and other macroeconomic factors in both home and host countries can be of great importance for investment decision. Therefore, policymakers of ASEAN countries should make appropriate macroeconomic policies that can stimulate inward and outward acquisitions. Originality/value The main contribution of this paper is that it is the first to present the analysis of macroeconomic influences on the trends of inward and outward merger and acquisition activities in six ASEAN countries.

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