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Were Aggregate Demand Shocks Important In Explaining Indonesian Macroeconomic Fluctuations?

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  • Hermanto Siregar
  • Bert D. Ward

Abstract

This paper assesses the importance of aggregate demand shocks in the Indonesian macroeconomy using a variant of the Mundell-Fleming model analysed with the structural VAR methodology. Short-run relations are identified with contemporaneous restrictions, whereas long-run relations are embedded in a long-run money demand equation and a policy reaction function. Estimation results are generally plausible and consistent with small open economy theory. Results from the model provide empirical evidence on the relative importance of aggregate demand shocks over aggregate supply shocks in affecting macroeconomic fluctuations. The implication of this finding on monetary and fiscal policies is formulated.

Suggested Citation

  • Hermanto Siregar & Bert D. Ward, 2002. "Were Aggregate Demand Shocks Important In Explaining Indonesian Macroeconomic Fluctuations?," Journal of the Asia Pacific Economy, Taylor & Francis Journals, vol. 7(1), pages 35-60.
    • Handle: RePEc:taf:rjapxx:v:7:y:2002:i:1:p:35-60
    DOI: 10.1080/13547860120110461
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    Cited by:

    1. Anis Chowdhury, 2002. "DOES INFLATION AFFECT ECONOMIC GROWTH? The relevance of the debate for Indonesia," Journal of the Asia Pacific Economy, Taylor & Francis Journals, vol. 7(1), pages 20-34.
    2. Mansur, Alfan, 2015. "Identifying Shocks on the Economic Fluctuations in Indonesia and US: The Role of Oil Price Shocks in a Structural Vector Autoregression Model," MPRA Paper 94018, University Library of Munich, Germany, revised 09 Jun 2015.
    3. Junankar, Pramod N. (Raja), 2019. "Monetary Policy, Growth and Employment in Developing Areas: A Review of the Literature," IZA Discussion Papers 12197, Institute of Labor Economics (IZA).
    4. Enrico Tanuwidjaja & Choy Keen Meng, 2005. "Central Bank Credibility and Monetary Policy : Evidence from Small Scale Macroeconomic Model of Indonesia," Macroeconomics Working Papers 22576, East Asian Bureau of Economic Research.
    5. Enrico Tanuwidjaja & Choy Keen Meng, 2005. "Central Bank Credibility and Monetary Policy : Evidence from Small Scale Macroeconomic Model of Indonesia," Macroeconomics Working Papers 22576, East Asian Bureau of Economic Research.

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