Title : Dynamic Causality Analysis between Economic Growth, Trade Oppenness, Exchange Rate in Indonesia.
Name : Naltaqia Syukri
Student ID : 150101010040
Department/Faculty : Economic Development/Economic and Business
Supervisor : Dr. Sofyan Syahnur, M.Si.
Field of Study : Monetary Economics
This study aims to examine the dynamic causality relationship between economic growth, trade oppennes, and exchange rates. The dynamic causality is in the form of short term and long term. To answer the research objectives, the VECM causality method is used. Data used from 1990 to 2020 sourced from the World Bank. The results of the study in the short term found that the exchange rate and economic growth had a one-way causality relationship from the exchange rate to economic growth. The relationship between trade oppennes and economic growth in the short term is found to have a two-way causal relationship. Meanwhile, the relationship between the exchange rate and open trade was found in one direction from trade oppennes to the exchange rate. Long-term causality shows that economic growth and trade oppennes have a one-way effect on the exchange rate. The results of the impulse response function test show that trade oppennes shocks cause rupiah exchange rate depreciation in the long term and exchange rate shocks have a negative impact on economic growth in the short term. Meanwhile, exchange rate shocks also had an impact on trade oppennes. Suggestions from the research are that the government as a policy actor needs to strengthen economic growth by maintaining the exchange rate and increasing trade oppennes in the short term. In the long term, the role of Bank Indonesia needs to be present in this regard given the impact of economic growth and trade oppenes having a significant impact on the exchange rate and controlling the exchange rate is aimed at maintaining domestic prices.
Keywords: Economic growth, Exchange rate, Trade openness, Dynamic Causality, VECM