ARDL Approach to Investigating Relationships Between Tribes Loan Interest, Money Supply, and Exchange Rates in Indonesia

Abstract

This study investigates the dynamic relationship between lending interest rate, money supply and the Exchange Rate in Indonesia using the Autoregressive Distributed Lag (ARDL) bounds testing approach over the period 1986-2023. The empirical findings reveal that lending rates and money supply have a short-run relationship to the exchange rate, although in the long run, none of them are associated with the exchange rate. These results underline that lending rates and money supply quickly affect the exchange rate. Finally, some lessons will be drawn for monetary policy in Indonesia, related to the impact of the role of money and lending rates and their expected implications in the future regarding the implementation of effective monetary policy.