Symmetric and Asymmetric Effect of Crude Oil Prices and Exchange Rate on Bond Yields in Indonesia

Abstract

This study aims to examine the symmetric and asymmetric effects of crude oil prices and exchange rate on bond yields in Indonesia. Dubai crude oil prices are used as a proxy for crude oil price data and the IDR/USD exchange rate is used as a proxy for exchange rate. Meanwhile, the 10-year Indonesian bond yields are used as a proxy for bond yields. Data on Dubai crude oil prices, the IDR/USD exchange rate, and the 10-year Indonesian government bond yields are time-series data from January 2007 to April 2019. The results of the test using the autoregressive distributed lag and nonlinear autoregressive distributed lag models show that (1) in the long-run, neither the crude oil prices nor the exchange rate has symmetric and asymmetric effects on the bond yields, and (2) in the short-run, both of them have symmetric and asymmetric effects on the bond yields.

The Influence of Crude Oil Prices Volatility, the Internet and Exchange Rate on the Number of Foreign Tourist Arrivals in Indonesia

“…Exchange rates can affect the number of foreign tourist arrivals via interest rate channels and inflation. According to the uncovered interest rate parity theory, if the domestic currency exchange rate strengthens (appreciates), then the domestic interest rate can fall (Pilbeam, 2006;Adam et al, 2017;Saenong et al, 2020) which can afterward encourage inflation (Saidi et al, 2019). High inflation can raise travel costs, accommodation, and production prices of the tourism industry which in turn can reduce the number of foreign tourist arrivals in the country of tourist destination (Al-Mulali et al, 2019).…”

Determining Factors for 10-Year Local Currency Sovereign Bonds Yield With Dynamic Regression Model

“…These two studies are in line with a work by Permanasari & Kurniasih (2021) who study the effect on Indonesia's bonds yield, suggesting a significant positive-relationship between the exchange rate and the yield. A slight different conclusion is provided by Saenong et al (2020) who argue that the effect on the Indonesia's bonds yield only significant in the short run but find to be insignificant in the long run.…”

“…Moreover, some works highlight the effect of exchange rate on the bonds yield (Miyajima et al, 2015), (Gadanecz et al, 2018), (Saenong et al, 2020) and (Permanasari & Kurniasih, 2021). Miyajima et al (2015) suggest crucial effect of the exchange rate on the yield in emerging economies, while Gadanecz et al (2018) who use exchange rate volatility and expected exchange rate as predictor variables also confirm the significant relationship.…”

Exchange Rate Volatility and Oil Prices in South Africa

“…The study employed a Bayesian Markov-Switching Vector Error Correction model on daily data spanning from 1987 to 2012 and found that there is asymmetric relationship between oil prices and exchange rate volatility. Saenong et al (2020) conducted a symmetric and asymmetric effect of crude oil prices and exchange rate on bond yields in Indonesia utilising monthly data spanning from 2007 M1 to 2019 M4. The study employed ARDL and NARDL models and discovered that neither oil prices nor exchange rate has symmetric relationships to bond yields in the long run and vice versa in the short run.…”