Financial Crisis Forecasting in Indonesia Based on Bank deposits, Real Exchange Rates and Trade Terms Indicators

Abstract

Indonesia has experienced a financial crisis several times, but the crisis that occurred in 1997 had a bad impact on the economy and national stability. Therefore, it needs a model that can be used to predict the condition ahead. This paper proposes forecasting the financial crisis in Indonesia. Bank deposits, real exchange rates and exchange rates of trade indicators are used in this paper. Data from January 1990 to December 2015 are used to form the models, while data from January to December 2016 are used to accurate the models. Combination of volatility and Markov switching models are used to model the data. The result suggests that the appropriate model for bank deposit and real exchange trade is SWARCH (3.1), and for real exchange rates is SWARCH (3.2). SWARCH (3.1) model has the accuracy 100%, while SWARCH (3.2) has the accuracy 75%. Based on these models, it can be forecasted that there is no financial crisis in Indonesia on 2017.