The Exchange Rate Misalignment, Volatility and the Export Performance: Evidence from Indonesia

his study investigates the short-run and long-run impact of real exchange rate misalignment and volatility on Indonesian export to the US by exploiting the disaggregated data of export volume. The proxy of real exchange rate misalignment was obtained by estimating the fundamental equilibrium exchange rate (FEER) model, and the exchange rate volatility measured by employing the GARCH (1,1) model. We employed the ARDL bound test approach to check the existence of a long-run equilibrium between export volume and the variable under consideration. Both the short-run estimation using the error correction model and the long-run model indicates that half of the commodities are significantly and positively affected by real exchange rate misalignment. However, only a small number of commodities is significantly affected by the exchange rate volatility.