The nexus of America's exchange and interest rate toward Indonesia's economy: An application of time-series regression

Abstract

This study examines the nexus of the US interest rate, the Indonesian interest rate, and the Indonesia economy's exchange rate. This study uses time-series data with research time starting from 2010.1 - 2019.4. This study's analysis model uses the Ordinary Least Square (OLS) multiple linear regression model with the unit root test method with the Augment Dickey-Fuller (ADF) approach. The results show that the US interest rate variable significantly affects the Indonesian economy, although its effect cannot identify directly. For the variable of Indonesia's interest rate, the development tends to identify the development of foreign interest rates is also significant. When the domestic interest rate rises, the government must strive to suppress the increase rate by implementing monetary policies to stabilise the domestic interest rate. In contrast, this study's exchange rate variable is significant for the Indonesian economy, even at different levels. So, it is hoped that the government can continue to maintain the stability of the economy at the domestic interest rate by monitoring the exchange rate that affects exports to identify it carefully and how it can affect Indonesia's economic growth.