A New Monetary Era and the Necessity of Exchange Rate Policy Reformulation for Macroeconomic Performance: the Inclusive Nominal Exchange Rate (INEX). Lessons from Indonesia in ASEAN-10

Authors

  • Kadjo Daniel Bitty Moro Universitas Airlangga
  • Dr. Djoko Mursinto
  • Dr. Rudi Purwono

DOI:

https://doi.org/10.14738/assrj.34.2002

Abstract

This paper is actually part of a research that was conducted in twenty five countries
from the Association of Southeast Asian Nations (ASEAN-10) and the Economic Community
of West African States (ECOWAS-15) about the factual correlation between exchange rate
and five macroeconomic variables. However, here, we focus on the case of Indonesia, the
largest economy of the regional integrated area ASEAN. The study starts from the fact that
nowadays, because of the growing openness of national markets, no longer the interest rate
but the exchange rate appears to be the single monetary tool that can be used to
simultaneously boost economic growth and protect national economic fundamentals against
adverse external shocks, but how? That question constitutes the major concern of this article.
Using secondary macroeconomic data, this paper has adopted a mixed-methodology approach
based on a correlation test and statistical mapping technique analysis which constitutes the
novelty compared to previous studies on monetary issues. The paper reveals that Indonesia,
under floating exchange rate regime has successfully controlled inflation rate but at the
expense of the GDP growth. The major finding of this study is a proposal for new formulation
of the exchange rate valuation named: the “Inclusive Nominal Exchange rate” (INEX) which
is based on real economic performances of a country and the structure of its economy. An
illustration of the INEX showed that in 2014, the macroeconomic fundamentals of Indonesia
were better but, the nominal exchange rate failed to capture that performance.

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Published

2016-04-26

How to Cite

Moro, K. D. B., Mursinto, D. D., & Purwono, D. R. (2016). A New Monetary Era and the Necessity of Exchange Rate Policy Reformulation for Macroeconomic Performance: the Inclusive Nominal Exchange Rate (INEX). Lessons from Indonesia in ASEAN-10. Advances in Social Sciences Research Journal, 3(4). https://doi.org/10.14738/assrj.34.2002