The J-curve of Indonesia Trade Balance with His Trading Partners: Autoregressive Distributed Lag Method

This study analyzesthe impact of the real effective exchange rate (REER) on Indonesia's bilateral trade balance with its 14 most significant trading part-ners every month from 2005 to 2021. The ARDL (autoregressive distributed lag) technique is implemented here. This research aims to understand the causes and mechanisms behind the positive change in Indonesia's trade bal-ance following the introduction of the J curve. This is a head-to-head phenom-enon, as the J curve is related to the functioning of the transaction. So, trade characteristics (i.e., intervention in the exchange rate market) should be con-sidered when determining how to restore a positive trade balance after an adjustment in the exchange rate. From 2005 to 2021, U.S.-Philippine com-merce complied fully with Marshall-Lerner Act standards. As a result of the real exchange rate depreciation, the trade balance in Indonesia is forecast to improve. Indonesia's commercial ties with Singapore, Australia, the Neth-erlands, India, Japan, Germany, Korea, Malaysia, China, and Thailand do not satisfy this requirement because of the country's substantial reliance on im-ports, notably of raw resources. Significant effects on the J-curve phenomena may be seen at 1%, 5%, and 10% for Indonesia's trade balance with the US, Japan, Korea, Singapore, and Vietnam, respectively. Thus, if the rupiah were depreciated, the trade imbalance with Indonesia's top five trading partners would immediately decrease.