Current account imbalances and exchange rate volatility: Empirical evidence from Indonesia

Whether macroeconomic fundamentals affect the exchange rate volatility in emerging markets with an inflation-targeting regime or not is highly challenging. In this paper, impact of current account deficits and foreign reserves on real rates. Applying threshold quantile regression models related to Indonesia over period from 2005(7) 2021(12), it concluded that both variables play important role controlling instability. Both coefficients are also found have upward linear pattern. The asymmetric balance holds. Claiming a two-percent deficit GDP safe amount will significantly foreign-exchange justified as such. behavior has potential trigger volatility, thereby undermining monetary policy within framework inflation targeting regime. Accordingly, optimal stock might avoid imposing dual goals stability.