Abstract

The crisis that hit US at the first half of 2007’s, was claimed to be affecting other countries, including Indonesia. Thus, the effect hit Indonesia through two channels; trade and financial channel. The purpose of this study is to identify crisis channel (financial and trade channel) and to determine the effects of financial crisis to Indonesia. We also try to determine which of the two channels has the bigger role in the transmission of the global financial crisis towards Indonesian economy. For that purpose, this study uses Two Stage Least Squared (TSLS) and vector autoregressive (VAR) methods. The results showed that the effect of the shock on the GDP of trading partner countries (the United States, China, Japan, Britain, France and Germany) and IDX have greater impact on the trade channel. This is confirmed by the analysis of variance decomposition in which looks at the percentage of influence due to greater shock received by the other variables. Furthermore, from the simulation and analysis of vector autoregressive method, household consumption looks a pillar of economic growth does not decline due to financial crisis.

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