Previous studies that assessed the impact of currency depreciation on inpayments and outpayments of Indonesia with her major trading partners did not find much significant results, especially in the trade with the United States. We wonder whether insignificant link between the real
rupiah-dollar rate and Indonesia’s inpayments and outpayments with the United States is due to aggregation bias. To answer this question, we disaggregate the trade flows between the two countries by commodity and consider the sensitivity of inpayments of 108 US exporting industries and
outpayments of 32 US importing industries from Indonesia. We find that most industries respond to exchange rate changes in the short run. In the long run, however, 32 inpayments schedule and 17 outpayments schedule are significantly affected. A 1% real depreciation of the dollar was found
to improve US trade balance by 1.8%.
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Document Type: Research Article
The Center for Research on International Economics and Department of Economics, The University of Wisconsin-Milwaukee, Milwaukee, WI, 53201, USA
Department of Economics, Pennsylvania State University, Mont Alto, PA, 17237, USA
Publication date: 2014-06-23
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