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Using Indonesia's Real Exchange Rate to Test Ricardian Equivalence

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  • Yoopi Abimanyu
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    Abstract

    Using Indonesia as a study case, this paper analyzes the relationship between the actual real exchange rate, the equilibrium real exchange rate, and other macroeconomic variables. The estimate shows that, out of nine explanatory independent variables, only government consumption and the fiscal deficit have significant effects on the real exchange rate variable. Increases in both government consumption and the fiscal deficit appreciate the real exchange rate. This finding rejects Ricardian equivalence. [E62, F41, O53].

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    File URL: http://www.tandfonline.com/doi/abs/10.1080/10168739800000026
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    Bibliographic Info

    Article provided by Taylor & Francis Journals in its journal International Economic Journal.

    Volume (Year): 12 (1998)
    Issue (Month): 3 ()
    Pages: 17-29

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    Handle: RePEc:taf:intecj:v:12:y:1998:i:3:p:17-29

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    1. Khan, Mohsin S. & Ostry, Jonathan D., 1992. "Response of the equilibrium real exchange rate to real disturbances in developing countries," World Development, Elsevier, vol. 20(9), pages 1325-1334, September.
    2. Kim, Yoonbai, 1990. "Purchasing Power Parity in the Long Run: A Cointegration Approach," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 22(4), pages 491-503, November.
    3. Barro, Robert J, 1974. "Are Government Bonds Net Wealth?," Journal of Political Economy, University of Chicago Press, vol. 82(6), pages 1095-1117, Nov.-Dec..
    4. Banerjee, Anindya & Dolado, Juan J. & Galbraith, John W. & Hendry, David, 1993. "Co-integration, Error Correction, and the Econometric Analysis of Non-Stationary Data," OUP Catalogue, Oxford University Press, number 9780198288107.
    5. Wilcox, David W, 1989. "Social Security Benefits, Consumption Expenditure, and the Life Cycle Hypothesis," Journal of Political Economy, University of Chicago Press, vol. 97(2), pages 288-304, April.
    6. Dickey, David A & Fuller, Wayne A, 1981. "Likelihood Ratio Statistics for Autoregressive Time Series with a Unit Root," Econometrica, Econometric Society, vol. 49(4), pages 1057-72, June.
    7. Arnold Harberger, 1986. "Economic Adjustment and the Real Exchange Rate," NBER Chapters, in: Economic Adjustment and Exchange Rates in Developing Countries, pages 369-424 National Bureau of Economic Research, Inc.
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