THE ROLE OF EXCHANGE RATE VOLATILITY AND INFLATION ON INCOME DISTRIBUTION: EVIDENCE FROM INDONESIA

Abstract

This study aims to examine the relationship of GDP, exchange rate volatility, inflation and income
distribution in Indonesia. In some developing countries the exchange rate volatility is generally largely
adopted by a floating exchange rate system. This paper investigates the impact of the increase, GDP,
exchange rate volatility, inflation on income distribution using annual panel data for the period 1990-2019
by applying the ARDL model and analysis of bounds testing. This study found that increased exchange
rate volatility and inflation led to a more uneven distribution of income in the long run in Indonesia. the
dollar exchange rate holds important in Indonesia's foreign trade. The implication of this study is that
changes in the value of the dollar exchange rate have a significant impact on income distribution and
welfare.