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Impacts of Macroeconomic Forces and External Shocks on Real Output for Indonesia

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  • Yu Hsing

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    (Department of Management & Business Administration, College of Business, Southeastern Louisiana University, Hammond, Louisiana 7040,2 U.S.A.)

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    Abstract

    Extending Romer (2000, 2006) and Taylor (1993, 1999, 2001), this paper applies the IS-MP model to study potential impacts of selected macroeconomic variables and external shocks including crude oil prices on real GDP for Indonesia. The results show that a higher real stock price, real appreciation of the rupiah, a lower inflation rate, a higher real crude oil price, and a lower real federal funds rate are expected to increase Indonesia’s real GDP. More deficit spending as a percent of GDP would not cause real output to rise. Hence, Indonesia would not suffer declining output because of higher oil prices. Due to the insignificant coefficient of the government deficit as a percent of GDP, fiscal prudence needs to be pursued.

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    Bibliographic Info

    Article provided by Queensland University of Technology (QUT), School of Economics and Finance in its journal Economic Analysis and Policy (EAP).

    Volume (Year): 42 (2012)
    Issue (Month): 1 (March)
    Pages: 97-104

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    Handle: RePEc:eap:articl:v:42:y:2012:i:1:p:97-104

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    1. Abu N. M. Wahid & Mohamad Ikhsan, 1996. "Policy Reforms in Indonesia: A Political Economy Perspective," Philippine Review of Economics, University of the Philippines School of Economics and Philippine Economic Society, vol. 33(1), pages 37-58, June.
    2. Abeysinghe, Tilak, 2001. "Estimation of direct and indirect impact of oil price on growth," Economics Letters, Elsevier, vol. 73(2), pages 147-153, November.
    3. Mehrara, Mohsen & Oskoui, Kamran Niki, 2007. "The sources of macroeconomic fluctuations in oil exporting countries: A comparative study," Economic Modelling, Elsevier, vol. 24(3), pages 365-379, May.
    4. Chong Lee-Lee & Tan Hui-Boon, 2007. "Macroeconomic factors of exchange rate volatility: Evidence from four neighbouring ASEAN economies," Studies in Economics and Finance, Emerald Group Publishing, vol. 24(4), pages 266-285, September.
    5. Frederic S. Mishkin, 1995. "Symposium on the Monetary Transmission Mechanism," Journal of Economic Perspectives, American Economic Association, vol. 9(4), pages 3-10, Fall.
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    7. Narayan, Paresh Kumar, 2007. "Is money targeting an option for Bank Indonesia?," Journal of Asian Economics, Elsevier, vol. 18(5), pages 726-738, October.
    8. Olugbenga Onafowora & Oluwole Owoye, 2005. "Currency Substitution and the Stability of the Demand for Money in East Asia," Global Economic Review, Taylor & Francis Journals, vol. 34(2), pages 233-259.
    9. Robert J. Barro, 1988. "The Ricardian Approach to Budget Deficits," Working Papers 728, Queen's University, Department of Economics.
    10. Tanuwidjaja, Enrico & Choy, Keen Meng, 2006. "Central bank credibility and monetary policy in Indonesia," Journal of Policy Modeling, Elsevier, vol. 28(9), pages 1011-1022, December.
    11. Huntington, Hillard G., 2004. "Shares, gaps and the economy's response to oil disruptions," Energy Economics, Elsevier, vol. 26(3), pages 415-424, May.
    12. Lee, Chien-Chiang, 2005. "Energy consumption and GDP in developing countries: A cointegrated panel analysis," Energy Economics, Elsevier, vol. 27(3), pages 415-427, May.
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