J-Curve For Indonesia’s Trade Balance with Non-Linier ARDL

The performance of Indonesia’s Balance of Payments (BOP), especially for the trade balance/current account, which recorded a surplus and adequate foreign exchange reserves, controlled political conditions, and attractive yields, can impact the exchange rate. This improvement in the exchange rate further encouraged the entry of foreign investors, which caused the Indonesian economy to continue to grow when the world experienced a financial crisis. This study analyzes asymmetric models to prove the Marshall Lerner Condition of Indonesia with trading partners. Using NARDL methods, this study uses monthly data from 2005 to 2021 from the International Federal Reserve (IFS), a data source for foreign trade activities. The result of this study is a J curve in Indonesia’s trade pattern with its trading partners, formed in the United States, Singapore, Vietnam, and Japan. For the nonlinear ARDL method, the J curve is formed in trading partners Netherlands, Germany, Korea, Singapore, United Kingdom, Vietnam, and Japan. The implementation of Indonesia’s exchange rate policy should be followed by a policy that can suppress the exchange rate against inflation because if this policy is not followed, it will not significantly impact Indonesia’s trade performance in the long run.