Dynamics of Exchange Rate, Equity, and Global Uncertainty in Indonesia
DOI:
https://doi.org/10.21512/becossjournal.v8i1.14698Keywords:
Exchange Rate, Equity Market, Financial Integration, Emerging MarketAbstract
This study examines the dynamic relationships among Indonesia’s stock market (IHSG), the exchange rate, and global economic policy uncertainty (GEPU) using monthly data from January 2000 to July 2025. The objective is to determine whether these variables share a stable long-run equilibrium or interact mainly through short-run dynamics across different economic regimes. The analysis covers four phases: the pre-global financial crisis period, the global financial crisis and Eurozone turmoil, post-crisis normalization, and the COVID-19 pandemic and global tightening period. The Johansen trace test provides only marginal evidence of cointegration, while the small first eigenvalue and structural-break results indicate that the detected long-run relationship is economically fragile and unstable. For this reason, the analysis proceeds with a VAR model in first differences. The results show a robust bidirectional short-run relationship between IHSG and the exchange rate in the full sample. GEPU does not independently Granger-cause IHSG in the full-sample model, but its influence becomes significant during the global financial crisis period, indicating that global uncertainty affects domestic equity dynamics mainly under stress conditions. The findings suggest that Indonesia’s financial market has become increasingly synchronized with global sentiment without implying that domestic equity movements structurally determine global uncertainty. These results highlight the importance of regime-aware risk management, exchange-rate monitoring, and adaptive macro-financial policy in an increasingly interconnected financial environment.
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