Abstract

This study analyses the effect of inflation and interest rates on the Rupiah exchange rate over the period Q1 2013 to Q4 2023. Using the Vector Error Correction Model (VECM) method, this study shows that in the short-term US inflation has a significant effect on the Rupiah exchange rate over the US dollar with a statistical value of t [-2.17833], while Indonesian inflation, BI rate, and Fed rate have no significant effect on the Rupiah exchange rate over the US dollar. Meanwhile, in the long term, US inflation and BI rate have a significant effect on the Rupiah exchange rate against the US dollar with a statistical value of t [-3.99210] and [-3.49936], while Indonesian inflation and the Fed rate have no significant effect on the Rupiah exchange rate on the US dollar. Therefore, BI needs to consider the Fed Rate, Indonesian inflation and US inflation in setting its monetary policy.

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