The Determinants of Indonesia’s Business Cycle

Berry A Harahap,Anggita Cinditya M Kusuma,Pakasa Bary

doi:10.2478/jcbtp-2020-0029

Berry A Harahap, Anggita Cinditya M Kusuma + Show 1 more

Open Access

https://doi.org/10.2478/jcbtp-2020-0029

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Abstract

Abstract This study investigates the determinants of Indonesian’s business cycle using the global vector autoregressive (GVAR) approach, by including spillover responses within 33 countries with 2000 bootstrap replications. The results show that Indonesia’s business cycle is influenced by both domestic and external factors. In addition to exogenous shocks from output, the dominant domestic factors are monetary policy and price competitiveness. The dominant external factors are global economic activity and liquidity conditions, particularly those originating from the Chinese economy. Spillovers from a number of economies appear to shape Indonesia’s economic fluctuations. The paper discusses such relevant spillovers.

Highlights

This paper assesses the determinants of Indonesia’s business cycle
This study investigates the determinants of Indonesian’s business cycle using the global vector autoregressive (GVAR) approach, by including spillover responses within 33 countries with 2000 bootstrap replications
We find shocks originating from a number of relatively remote economies play a sizeable role in Indonesia’s business cycle fluctuations

Summary

Introduction

This paper assesses the determinants of Indonesia’s business cycle. Business cycle can be very helpful for policy makers as well as the private sector, as it provides a tool for estimating short-term economic behavior, for evaluating the outcomes of certain policy decisions in different markets, or for assessing the implementation of policies in accordance with the cycle phase (Jimenez, 2001). A comprehensive understanding of business cycle determinants enables policy makers to design effective policy programs. Apart from this, it enables private sector to develop effective strategies for their businesses. The first variation is important because persistence occurs from time to time

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