The Impact of Monetary Policy and Macroeconomic Indicators on the Current Account in Developing ASEAN

Abstract

The current account balance is a component of the balance of payments, in which a surplus or deficit is a form of a country’s external balance or imbalance. Since the 2008 financial crisis and the COVID-19 pandemic, several countries, especially developing countries, have experienced external imbalances, which is related to a continuous pattern of transactions with the rest of the world. Developing countries in the ASEAN region are often vulnerable to experiencing external imbalances which are reflected in their current account balance, which every year the country continues to fluctuate and tends to decrease until it experiences a current account deficit. This research was conducted to analyze the impact of monetary policy and macroeconomic indicators on the current account situation of developing countries in the ASEAN region during the 15 year period of 2007–2021. The Current Account Balance as the dependent variable and the independent variable uses Interest Rates in explaining monetary policy and macroeconomic variables including Exchange Rate, Inflation, Gross Domestic Product, Foreign Direct Investment, and Trade Openness. This study analyzes long-term and short-term effects using the VECM panel model. The results show that Interest Rates in the short term has no effect, but in the longer term has a significant negative effect. The Exchange Rate in the short term and long term have a significant positive effect. Inflation and GDP have no effect in the short term but have a significant negative effect in the long term. FDI has a significant positive effect in the short term and the long term. And finally, Trade Openness in the short term has a significant positive and in the long term has a significant negative effect.


Keywords: current account balance, interest rate, macroeconomic, VECM panel

References
[1] Krugman PR. And MO. Ekonomi Internasional Teori Dan Kebijakan; 1992.

[2] Uneze and E. Re-examining the determinants of current account balance in an oil-rich exporting countries: A case of Nigeria. 2012.

[3] Sumiyati EE. Macroeconomic factors and current account deficit in Indonesia. J Econ Bus. 2022;5(4):8–18.

[4] Sadiku L, Fetahi-Vehapi M, Sadiku M, Berisha N. The persistence and determinants of current account deficit of FYROM: An empirical analysis. Procedia Econ Finance. 2015;33(15):90–102.

[5] Makanza CS, Dunne JP. Current account dynamics and monetary policy transmission in South Africa. 2017. pp. 1–37.

[6] Indonesia B. Program Siap QRIS Di Pasar, Dorong Perluasan Merchant QRIS. Jakarta: Departemen Komunikasi Bank Indonesia. 2021. https://www.bi.go.id/id/publikasi/ruangmedia/ newsrelease/Pages/sp_2329021.aspx%0D

[7] Aimon H, Kurniadi AP, Sentosa SU. Determinants and causality of current account balance and foreign direct investment: Lower middle income countries in ASEAN. KnE Soc Sci. 2020;2020:10–22.

[8] Salvatore D. Ekonomi Internasional Edisi 9 Buku 1. Salemba Empat; 2014.

[9] Simorangkir I. Pengantar Kebanksentralan Teori Dan Praktik Di Indonesia. Pusat Riset dan Edukasi Bank Sentral Bank Indonesia; 2014.

[10] Kurniadi AP, Aimon H. Determinants of the current account balance in Indonesia. 2018:178–186. https://doi.org/10.29210/2018125

[11] Wijaya E. Kondisi Makroekonomi Sebagai Faktor Yang Mempengaruhi Neraca Transaksi Berjalan Periode 1999-2016. Ekspansi: Jurnal Ekonomi, Keuangan, Perbankan dan Akuntansi. 2019;11(1):87.

[12] Santosa and RP. Ekonomi Sumber Daya Manusia Dan Ketenagakerjaan. Yogyakarta: UPP STIM YKPN; 2012.

[13] Ariyani N, Priyanto FW, Yuliati L. Current account determinants in ASEAN 6. Journal of Economics, Business, & Accountancy Ventura. 2018;21(2):169–176.

[14] Altayligil YB, Çetrez M. Macroeconomic, institutional and financial determinants of current account balances: A panel data assessment. J Econ Struct. 2020;9(1):1–23.

[15] Kartika, Sekar Lunggayu, Dewi Zaini Putri and HA. Analisis Kausalitas Current Account Deficit Dengan Keterbukaan Perdagangan,Nilai Tukar Riil Efektif Foreign Direct Invesment, Dan Pertumbuhan Ekonomi Indonesia. Jurnal Kajian Ekonomi Dan Pembangunan. 2019;2(1):461–4729.

[16] Eita JH, Manuel V, Naimhwaka E. Macroeconomic variables and current account balance in an open economy: Evidence from Namibia. Tydskr Stud Ekon Ekon. 2019;43(2):55–70.

[17] Ali MM, Ahmad TI, Sadiq R. Empirical investigation of foreign direct investment and current account balance in east Asian economies. Pakistan Journal Of Commerce And Social Science. 2019;13(3):779–795.

[18] Tenreng, Mariana and AI. Ekonomi Makro. Edited By S. H. Fahmi Jalaluddin. Syakir Media Press; 2022.

[19] Saputra T, Maryatmo R. Pengaruh Nilai Tukar Dan Suku Bunga Acuan Terhadap Neraca Transaksi Berjalan Di Indonesia Periode 2005:1 – 2015: 1 (Pendekatan Error Correction Model). Modus. 2016;28(1):105.

[20] Nufus Z. Ekonomi Internasional. edited by K. Khoiri. CV. Agus Salim Press; 2022.

[21] Melvin, Michael and SN. Chapter 12 - Determinants of the balance of trade. International Money and finance (Tenth Edition). 2023.

[22] Hung JH, Gamber EN. An absorption approach to modeling the US current account. Rev Int Econ. 2010;18(2):334–350.

[23] Daulay T. Analisis Mekanisme Transmisi Kebijakan Moneter Di Indonesia: pemodelan Mundell-Fleming. Jurnal Ekonomi Dan Keuangan. 2013;1:14773.

[24] Saragih, Ferdinan D. and YN. Dasar-Dasar Keuangan Internasional. Jakarta: Rajawali Pers; 2014.

[25] Funmilola D, Oladele A. Capital inflow, trade openness and current account balance in Nigeria. Int J Econ Bus Manag Res. 2020;4:40–53.

[26] Ju, Jiandong, Kang Shi and S-JW. Trade reforms and current account imbalances. 2016.

[27] Gossé JB, Serranito F. Long-run determinants of current accounts in OECD countries: Lessons for intra-european imbalances. Econ Model. 2014;38:451–462.

[28] Shahani R, Vashisth B. Impact of macroeconomic variables on India’s stock market : A dynamic OLS approach. Bus Anal. 2020;40:37–60.

[29] Gujarati DN. Basic econometics. Fourth. The McGeaww-Hill Companies; 2004.

[30] Gujarati D. Econometrics by example. New York: Palgrave Macmillan; 2011.

[31] Buckley PJ, Casson M. The internalization theory of the multinational enterprise: Past, present and future. Br J Manage. 2020;31(2):239–252.

[32] Urom C, Yuni DN. An empirical analysis of the determinants of current account dynamics in selected sub-Saharan African economies. Int J Sustain Econ. 2018;10(4):360–382.