FACTORS ANALYSIS THAT AFFECT INDONESIA’S FOREIGN EXCHANGE RESERVES

Abstract

By                               : Risa Restiana Sobris

Advisor                       : Dr. Evi Susanti Tasri, S.E., M.Si

                                   Nurul Huda, S.E., M.Si

Summary

For a developing country like Indonesia, especially with an open economic system, enabling economic relations with foreign countries to occur. This economic relationship with abroad has had an effect on the domestic economy. In conducting international trade then every country needs foreign exchange reserves as a means of payment abroad. Foreign exchange reserves represent total foreign currency owned by the government and private sector of a country. The more foreign exchange owned by the government and the citizens of a country, the greater the country's ability in conducting international economic and financial transactions and the stronger the value of the country's currency. A persistent decline in foreign exchange reserves may endanger a country's economy.

This test analyzes the effects of exchange rates, gross domestic product, inflation and exports on Indonesia's foreign exchange reserves. The method used in this research is error correction model (ECM) which aims to analyze long-term, short-term, variable correction, variable adjustment to long-term and long-term relationship between variables. The data used are secondary data from 2000 - 2016.

The results showed that in the short-term exchange rate, Gross Domestic Product (GDP), and Export have positive effect on Indonesia Foreign Exchange Reserves. While the Inflation variable has a negative effect on Indonesia's Foreign Exchange Reserves. In the long run only the Gross Domestic Product (GDP) and Export variables are positively and significantly affect the Indonesia Foreign Reserves. While the exchange rate variable has positive and insignificant effect on Indonesia Foreign Exchange Reserves. And Inflation variables have a negative and significant impact on Indonesia's Foreign Exchange Reserves.

Keywords :

Indonesia’s Foreign Exchange Reserve, Exchange Rate, Gross Domestic Product (GDP), Inflation, and Export