Global commodity price shocks and Indonesia’s exchange rate dynamics during the Russia-Ukraine conflict: A VECM analysis
DOI:
https://doi.org/10.12928/optimum.v16i2.15857Keywords:
Russia-Ukraine Conflict, Commodity Prices, Exchange Rate, Causality Analysis, VECMAbstract
The Russia–Ukraine conflict has disrupted global commodity markets, particularly crude oil, natural gas, wheat, and corn, leading to increased price volatility and affecting exchange rate dynamics. This study aims to analyze the Granger-causal relationship between global commodity prices and the USD/IDR exchange rate using the Vector Error Correction Model (VECM). Monthly data from November 2013 to September 2023 are employed to examine both short-run dynamics and long-run equilibrium relationships. The results show that, in the long run, crude oil prices have a negative relationship with the USD/IDR exchange rate, indicating an appreciation of the Indonesian Rupiah, while natural gas, wheat, and corn prices have positive effects, contributing to currency depreciation. In the short run, only crude oil prices significantly influence the exchange rate. The Granger causality test reveals a unidirectional relationship from crude oil prices to the exchange rate. Furthermore, the model demonstrates high predictive accuracy, with MAPE values of 1.54% (exchange rate), 6.91% (crude oil), 10.54% (natural gas), 6.92% (wheat), and 4.50% (corn). These findings highlight the dominant role of energy commodities and confirm that global commodity shocks significantly influence exchange rate movements, providing important insights for policymakers in managing economic stability.
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