Estimation of the Impact of Devaluation on Indonesian Aggregate Trade Performance

Estimation of the Impact of Devaluation on Indonesian Aggregate Trade Performance

This study evaluates the relationship between the real exchange rate and Indonesia`s aggregate trade performance between 1975 and 1990. I estimate structural import and export functions that are consistent with traditional empirical trade models, in which a rupiah devaluation leads rupiah import and export prices to increase relative to domestic prices. The study provides the first Indonesian import demand elasticity estimates, and it offers more precisely estimated non-oil export supply elasticities than previous work. Results add to the body of evidence that supports devaluation`s use in dampening imports and stimulating exports.