INFLATION TARGETING AND REAL EXCHANGE RATES IN ASEAN-3 USING: VECTOR ERROR CORRECTION MODEL (VECM)

RAHMADANI, UCIYANTI.A (2014) INFLATION TARGETING AND REAL EXCHANGE RATES IN ASEAN-3 USING: VECTOR ERROR CORRECTION MODEL (VECM). Other thesis, ANDALAS UNIVERSITY.

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Abstract

University Alumnus Registration No: RAHMADANI UCIYANTI.A Faculty Alumnus Registration No: BIODATA a) Date of Birth: Batusangkar/20 April 1990 b) Parent’s Name: Arisman and Ratna Awidar c) Faculty : Economics d) Department : Economics International e) Student No: 0810514034 f) Date of Examination : January 28, 2014 ) Graduate Standard : With Honor h) GPA : 3.02 i) Length of Study Period: 5 years 4 month. j) Parent’s Address: Padang Magek, kec. Rambatan, Kab. Tanah Datar Inflation Targeting and Real Exchange Rate in ASEAN-3 using: Vector Error Correction Model (VECM) Thesis by: Rahmadani Uciyanti.A Thesis Advisor: Abdul Khaliq, SE, MA ABSTRACT This study investigates inflation targeting (IT) in ASEAN-3, focusing on the role of real exchange rate and the macroeconomics variables. This research applies VECM (Vector Error Correction Model) as the method analysis. The Granger test shows us there is the relationship between GDP and Exchange rate. It means the expansion of economy that governments do in the previous time, have been influencing our economy now. This statement strengthens by the estimation result that shows the GDP has significant influence the amount of exchange rate in the short term and in the long term. The impulse response forecast that GDP gives a negative impact to the exchange rate. But the exchange rate has a positive response in economic growth. The results of forecast error variance decomposition showed that the logarithm of real exchange rate explains a few percent of the forecast error variance of production and the logarithm of the inflation rate. In ASEAN-3 the output is the smallest influence to exchange rate and inflation. This research demonstrates IT ASEAN-3 appear to follow a “mixed strategy” whereby both inflation and real exchange rates are important determinants of policy interest rates. Keywords: Inflation Targeting (IT), real exchange rate, macroeconomics variable This thesis has been presented in the thesis examination and succesfully passed the thesis examination on January 28, 2014 . The abstract has been approved by the advisor and the examiners : Signature 1. 2. 3. Full Name Abdul Khaliq, SE, MA Dr. H. Hefrizal Handra, M.Soc, Sc Drs.H.Masrizal,M.Soc.Sc Approved by : Head of Department : Dr. H. Hefrizal Handra, M.Soc, Sc NIP.196510201993021001 Signature The alumnus has registered to the Faculty of Economic of Andalas University and has obtained the Alumnus Registration Number : The officer in charge of Faculty/Andalas University University Alumnus Registration No : Name : Signature : Faculty Alumnus Registration No : Name : Signature :

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