TRACING NICKEL PRICE SHOCKS IN INDONESIA’S REER-TRADE BALANCE NEXUS: SVAR
Keywords:
Indonesia, Nickel Price Shocks, Real Effective Exchange Rate, Structural Vector Autoregression, Trade BalanceAbstract
Indonesia’s dominant role in the global supply chain of nickel and its downstream products has changed nickel from a conventional export commodity into a strategic issue in Indonesia’s external sector. Nickel price movements may influence Indonesia’s external balance. To determine the extent to which global nickel price movements shape the real effective exchange rate (REER) and Indonesia’s trade balance, empirical testing is needed because Indonesia’s aggregate trade balance is affected not only by nickel exports, but also by import dependence, exchange rate competitiveness, and global demand. This study aims to analyze the structural transmission of global nickel price shocks to REER and Indonesia’s trade balance using monthly time-series data from 1994:1 to 2025:12. The method used is Structural Vector Autoregression (SVAR) with three lags, supported by stationarity testing, lag selection, stability testing, impulse response function, and forecast error variance decomposition to capture the response direction, effect duration, and contribution of each shock to changes in the variables. The results show that nickel price shocks generate only a limited and short-lived response to Indonesia’s trade balance over a twelve-month horizon. Forecast error variance decomposition in the twelfth month shows that trade balance fluctuations are mainly explained by the trade balance shock itself at 97.89%; nickel price shocks explain only around 2.04%, while REER shocks explain around 0.07%. This finding emphasizes that Indonesia’s strategic nickel position does not automatically strengthen its external sector. This study presents nickel-specific SVAR evidence and shows that strategic commodity growth does not always generate strong macroeconomic transmission when trade balance is influenced by broader structural components. Therefore, policy design should not only focus on strategic commodity expansion, but also strengthen export diversification, increase domestic value added, reduce dependence on imported inputs, and build downstream industrial linkages to optimize nickel’s strategic role in Indonesia’s trade performance.
Keywords: Indonesia, Nickel Price Shocks, Real Effective Exchange Rate, Structural Vector Autoregression, Trade Balance.
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