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Is Indonesia’S Current Account Balance Optimal? Evidence From An Intertemporal Approach

Author

Listed:
  • Bhavesh Garg

    (Indian Institute of Technology Ropar)

  • K.P. Prabheesh

    (Indian Institute of Technology Ropar)

Abstract

This study investigates whether Indonesia’s Current Account (CA) balance is intertemporally solvent. We provide fresh evidence on Indonesia’s CA deficit solvency by considering post-crisis period data and conducting sub-sample analysis. Our findings suggest that Indonesia’s CA is not solvent. We notice evidence of excess lending prior to the global financial crisis of 2008 and excess borrowing in the post-crisis period. Policymakers need to focus on the composition of capital flows and management of volatile capital flows since discouraging foreign capital inflows may serve as a deterrent to economic growth.

Suggested Citation

  • Bhavesh Garg & K.P. Prabheesh, 2022. "Is Indonesia’S Current Account Balance Optimal? Evidence From An Intertemporal Approach," Bulletin of Monetary Economics and Banking, Bank Indonesia, vol. 25(Special I), pages 1-18, March.
    • Handle: RePEc:idn:journl:v:25:y:2022:i:spc:p:1-18
    DOI: https://doi.org/10.21098/bemp.v25i0.1843
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    References listed on IDEAS

    as
    1. Caballero, Ricardo & Gourinchas, Pierre-Olivier & Farhi, Emmanuel, 2015. "Global Imbalances and Currency Wars at the ZLB," CEPR Discussion Papers 10905, C.E.P.R. Discussion Papers.
    2. Mr. Tim Callen & Mr. Paul Cashin, 1999. "Assessing External Sustainability in India," IMF Working Papers 1999/181, International Monetary Fund.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Current account; Cointegration; Consumption-smoothing; Intertemporal solvency; Present value model;
    All these keywords.

    JEL classification:

    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • F30 - International Economics - - International Finance - - - General
    • F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements
    • F42 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - International Policy Coordination and Transmission

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