Dynamics Of Real Exchange Rate and Three Financial Crisis: Purchasing Power Parity Relative Approach in Indonesia and Thailand

Abstract

This paper highlights the fluctuations in the exchange rate of the Rupiah and Baht against the USD with David Ricardo's purchasing power parity relative approach. We investigate whether fluctuations in the exchange rate of the domestic currency have an inf luence on the purchasing power of proxies with GDP per capita in the period of three financial crises namely the 1997 Asian financial crisis, the 2008 Subprime Mortgage Crisis and the 2011 European debt crisis. domestic money to people's purchasing power in Indonesia and Thailand. This analysis is based on the non-linear (dynamic) time series Threshold Autoregressive (TAR) model in the period 1994-2017. Our estimation results show that the fluctuations in the exchange rate of the domestic currency have a strong influence on people's purchasing power in Indonesia and Thailand.