Exchange Rate Dynamics in Indonesia : 1980-1998

This paper estimates the equilibirum level of the real exchange rate for Indonesia in order to measure the extent of overvaluation of the rupiah at the time of the Asian crisis in 1997. The equilibrium level of the real exchange rate is measured using cointegration approach, unobserved component model and structural vector autoregression (SVAR). The paper uses these models to analyze the developments in the exchange rate policy. None of the models support overvaluation of the rupiah to justify the massive depreciation in 1997