Exchange rate volatility and COVID-19 effects on Indonesia's food products' trade: Symmetric and asymmetric approach

This study aims to determine the symmetric and asymmetric effects of exchange rate volatility and other explanatory variables (real exchange rate, industrial production index, and COVID-19) on sixteen (16) food products traded between Indonesia and the United States, Indonesia and China. The study used the ARCH/GARCH approach and estimate the volatility of the exchange rate. Linear and nonlinear autoregressive distributed lag (ARDL) were applied to estimate the short- and long-run effect for the period 2009:M1–2020:M12. Findings from the ARDL method indicate that, in the short-term exchange rate volatility has a significant positive/negative effect on many products exported and imported throughout the study period. Different results were found in the Nonlinear ARDL method where a significant effect occurred especially on the food products import. The result further indicates that exchange rate volatility has a more negative effect symmetrically or asymmetrically. These results imply that most Indonesian traders to the United States and China tend to behave as risk-averse in the long run when responding to the phenomenon of exchange rate volatility. As a measure of robustness, a quantile regression further confirms that exchange rate volatility consistently affects food product trade. With this, therefore, stable exchange rate policies are needed to lessen the harmful effect of volatility on trade flows and balance the risk-taking behaviour among importers and exporters.