Effect of Exchange Rate Fluctuation on Rice Import in Indonesia using VAR Analysis

Abstract

In this paper, a VAR model is developed to study the effect of exchange rate fluctuation on rice imports in Indonesia. While the Basic Theory states that the exchange rate depreciation has a positive impact on economic growth through trade balance channel, some recent research studies had indicated that exchange rate depreciation had a negative impact on economic growth. In the context of these conflicting viewpoints, this study attempts to identify the impact of exchange rate fluctuations on rice imports in Indonesia. Through derivates, the V AR model provides two policy recommendations to the Government viz., (i) carefully evaluating the implementation of both short- and long-term monetary policy and (ii) monitoring the policy for stabilization of price for the rice.