Using The ECM Approach between Growth of the Current Account Balance and Foreign Exchange Reserve in Indonesia

ABSTRACT: The aim of this research to analyze relationship equilibrium to the long-term and short-term between the current account balance and foreign exchange reserve. As datum from the world bankstarts from 1982 until 2018, the used methodology Error Correction Model (ECM). The result of the estimate and analysis were the current account balance and foreign exchange reserve stationary at level with the ADF test. The variables had relationship equilibrium for the long-term and had one-way causality. That was the foreign exchange reserve that causes the current account balance. For the long-term, the current account balance had positively and not significantly to change the development of the foreign exchange reserves. From the short term disequilibrium relationship to the equilibrium relationship, the current account balance had negatively and not significantly too to change the development of the foreign exchange reserves.The value of the current account balance of Indonesia has a deficit in some periods. It would have a bad impact on domestic foreign exchange reserves. To the Government, the Ministry of Trade to keep the export performance to the stability of the current account balance surplus to increase the Indonesian economic growth.
KEYWORDS : Foreign exchange reserve, current account balance, ECM