"http://www.w3.org/TR/xhtml1/DTD/xhtml1-transitional.dtd"> Validity test of purchasing power parity doctrine: An Indonesian case study | Sidiq | Economic Journal of Emerging Markets

Validity test of purchasing power parity doctrine: An Indonesian case study

Sahabudin Sidiq, Herawati Herawati

Abstract


The goal of this study is to analyze the doctrine purchasing power parity (PPP) in Indonesia with the case study of the rupiah exchange rate to U.S. dollar. The autoregressive is used to estimate the relationship between the change of exchange rate and the difference Indonesia–USA inflation rate. The data used in this study are quarterly data obtained from the International Financial Statistics (IFS) and Bank Indonesia (BI) with the period 1997Q4-2013Q4. The exchange rate that used in this study is using the rate on rupiah to U S dollar. The price data used consumer price index in Indonesia and the United States with a base year of 2000. The results of this study show, that rupiah to the U.S. dollar is undervalued during the free floating exchange rate system and, the PPP doctrine to the case of the rupiah to the U.S. dollar is not valid in the period of this study.


Keywords


purchasing power parity, ex-change rate, undervalued

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DOI: http://dx.doi.org/10.20885/ejem.vol8.iss2.art4

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Economic Journal of Emerging Markets (EJEM)
ISSN 2086-3128 (print), ISSN 2502-180X (online)
Published by:
Center for Economic Studies, Department of Economics,
Universitas Islam Indonesia, Indonesia.

Creative Commons License
EJEM by http://journal.uii.ac.id/index.php/JEP/ is licensed under a Creative Commons Attribution 4.0 International License.