Bulletin of Monetary Economics and Banking

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The paper analyzes the Marshall-Lerner condition on Indonesian trade with its major trading partners. This study also investigates the existance of J-curve and covers the issue of the indirect pass-through effect, particularly the impact of the real exchange rate change on the Indonesian export performance.We apply the VECM model on the quarterly data of Indonesia and 8 of its trading partners, during the period of 1993:1-2004:4. The estimation result on the overall sample shows that the condition of Marshall-Lerner is satisfied, implying the rupiahs depreciation will increase the Indonesian export. Using each trading partner pair data, the Marshall-Lerner condition is not satisfied on the case of Singapore and England due to the inelastic export demand as the Indonesian export to both countries is mostly a consumption goods.The J-curve phenomenon is only found in the case of Japan, South Korea and Germany implying the depreciation of Rupiahs will increase Indonesian export. The elasticity estimation shows that 1% depreciation of Rupiahs only raise Indonesian export-import ratio by 0.37%. This small number strongly indicates that real exchange rate only plays a minor role on the Indonesian export performance.JEL Classification: C22, F14Keywords: Exchange rate, J-Curve, Marshall-Lerner, export, VECM.

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Creative Commons License

Creative Commons Attribution-NonCommercial 4.0 International License
This work is licensed under a Creative Commons Attribution-NonCommercial 4.0 International License




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