Dynamic Analysis of the Influence of Monetary Indicators on Indonesia's Current Account

Abstract

This study aims to analyse the effect of exports, imports, exchange rates, and gross domestic product (GDP) on current account in Indonesia in the short and long term. The novelty of this study lies in the use of time series data for the period 1993-2023 with the Error Correction Model (ECM) approach to see the dynamics of short-term and long-term relationships simultaneously. The data used is secondary data from the World Bank and Bank Indonesia. The results of the analysis show that partially, exports have a positive and significant effect while imports have a negative and significant effect on the current account in the short and long term. Meanwhile, the exchange rate has a positive and insignificant effect on the current account in the short and long term, while GDP has a negative effect in the short term and a positive and insignificant effect on the current account in the long term. Simultaneously, all four variables have a significant effect on the current account, confirming the strong link between international trade, economic growth, and external stability. This study confirms that managing the current account requires a strategy of increasing exports, controlling imports, and stabilising the exchange rate, especially during periods of global economic turmoil. The implications of the results of this study are expected to be input for the government in formulating trade and monetary policies that support current account surpluses and national economic resilience.