Abstract for: The Dynamics of Indonesian’s Currency Crisis in 1997

The exchange rate behavior in Indonesian’s recent crisis 1997 caused an interesting phenomenon of exchange rate disequilibrium. The exchange rate rose and fluctuated around its new quasi-equilibrium in damped oscillation behavior. Subsequent speculative attacks by some speculators which created new desired equilibrium generated such behaviors under two consecutive first order delays. Comparing the result with uncovered interest parity framework under a constant and oscillating risk premium revealed that exchange rate behaviors during the crisis was best explained by speculators attacks followed by uncovered interest parity under oscillating risk premium. Uncovered interest parity with a constant risk premium produce unreliable estimated exchange rate. Under some advisable range of parameters, exchange rate model with speculative attacks can explain the general behavior of the exchange rate during the crisis.