Global Liquidity Spillovers and Foreign Exchange Reserve Resilience: Evidence from Indonesia
Keywords:
Federal Reserve balance sheet; trade balance; foreign exchange reserves; Indonesia; monetary spilloversAbstract
Global monetary expansion and external trade dynamics have become increasingly important in understanding foreign exchange reserve accumulation in emerging economies. However, empirical evidence on the joint association of US monetary liquidity and domestic trade performance with reserve holdings remains limited, particularly across periods of global financial instability and unconventional monetary policy. This study investigates the relationships between the US Federal Reserve balance sheet, Indonesia's merchandise trade balance, and foreign exchange reserves using 216 monthly observations from January 2008 to December 2025. Employing descriptive statistics and multiple ordinary least squares regression, the analysis reveals a positive association between the Federal Reserve balance sheet and Indonesia's foreign exchange reserves (B = 0.011; t = 19.887; p < 0.001), while the merchandise trade balance exhibits a negative conditional association (B = −2.469; t = −3.599; p < 0.001). The model explains 69.2% of the observed variation in foreign exchange reserves (R² = 0.692). Nevertheless, diagnostic tests identify heteroskedasticity and substantial positive serial correlation, indicating that conventional OLS significance estimates require further validation. These findings provide preliminary evidence that Indonesia's reserve dynamics are associated with both global monetary conditions and domestic external-sector performance. By integrating global liquidity and trade-related indicators within a unified empirical framework, the study contributes to discussions of external-sector vulnerability in emerging economies and underscores the importance of robust time-series estimation for evaluating monetary spillovers and reserve management policies.
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