The Bayesian vector autoregressive model as an analysis of the government expenditure shocks while the covid-19 pandemic to macroeconomic factors

Abstract

This empirical work aims to determine whether the government expenditure shocks on consumption have impacts on macroeconomic factors. This study prepares four quarterly period datasets associated with macroeconomic activities in Indonesia with 24 data started in 2017 until 2022, such as government expenditure shocks on consumption, inflation, interest rate, and gross domestic product (GDP) growth rate. This dataset is divided into two parts before and after the Covid-19 outbreak pandemic. The core findings indicate that expenditure shocks on consumption following the Covid-19 outbreak pandemic affect improving economic activity by using the Bayesian approach as the alternative model combined with the vector autoregression (VAR) model in overcoming the over-parameterization and the small dataset as the innovation of this findings. The core finding has the implication of stabilizing the unstable macroeconomic forces following the Covid-19 pandemic. It demonstrates how government expenditure shocks can be used to help the economy run appropriately and stable.