ABSTRACT
Since almost all of countries embraced open economy as an economic system, International economic is now becoming a fundamental issue. This issue link through the trade in goods and services, through flows of economy, through investment in each other’s economies than even before. Show important the role of central bank as the ruler monetary authority. Since the arbitrage become one of the ideas in international economic This study examines the purchasing power parity in Indonesia and the comparators 6 ASEAN countries periods 2005-2012 using cointegration approach as a research model. Association among price, exchange rate and interest rates are play a role to accommodate this study. I found evidence on the long run relationship among the variables indicating the importance of interest rate and price on exchange rate behavior when this period is considred. The findings thus show that bivariate and multivariate approach impact within this period.is considered. And also found that the linkages between goods and asset market found in all countries comparator to support that PPP in Indonesia hold a long term behavior.
Keyword: Purchasing Power Parity in Indonesia, Exchange rate, price ratio, interest rate, Johansen cointegration, ASEAN economies