The Effect of Exchange Rate Volatility on Foreign Tourist Visits in Indonesia: GARCH Analysis

Abstract

In this era of globalization, currency exchange rates are one of the crucial factors affecting a country's economy. The exchange rate of a country's currency plays an important role in economic stability and international trade, especially in the tourism sector. This study aims to conduct an in-depth analysis to identify patterns of rupiah exchange rate volatility using the Generalized Autoregressive Conditional Heteroscedasticity (GARCH) model, and then examine whether these patterns have a significant correlation with the number of foreign tourist arrivals in Indonesia. In analyzing the data, researchers conducted several classical assumption tests, namely the normality test and the heteroscedasticity test. The test results show that the data used, namely the rupiah exchange rate data and the number of foreign tourist visits, are not normally distributed and heteroscedastic. In this case, it resulted in researchers not use the Pearson correlation test so they used the Kendall-Tau correlation test and Granger Causality test which resulted in the two variables being correlated. Furthermore, GARCH modeling is carried out which provides forecasting on both data to increase in 2024. The results of this study are expected to provide a basis for consideration for stakeholders to determine policies, especially in the financial and tourism sectors.