Bulletin of Monetary Economics and Banking

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Indonesia is a largest producer of Crude Palm Oil in the world, with increasing production and export from time to time. Since Indonesia now adopts a floating exchange rate regime, the export of such commodity may influence the real exchange rate, and this is the aim of this paper. By applying simultaneous equation model on data from 1984 to 2011, we conclude that the increase in CPO price will lead to an appreciation of Rupiah’s real exchange rate. As a major producer of CPO, the authority should be able to control the world price of crude palm oil to help controlling the stability of Rupiah’s rate. Keywords: CPO, simultaneous equation, real exchange rate.

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