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Analysis of the Unanticipated Factors in Portfolio Inflows to Indonesia: A SCVAR Approach, 2000: Q1 - 2012: Q4

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  • Mr Insukindro
  • Arti Adji
  • Aryo Aliyudanto

Abstract

After the 2008 global economic crisis, as one of the emerging markets, Indonesia experiences a lot of capital inflows. The increase in capital inflows stimulated economic activities and caused macroeconomic fluctuations. This study focused on the analysis of pull and push factors that affect the portfolio capital inflows to Indonesia. The study utilized structural cointegrated vector autoregressive (SCVAR), impulse responses function (IRF), and variance decomposition (VD) methods. The method of SCVAR has been developed to analyze the shocks to factors relatively affecting the variation of incoming portfolio inflows (equity and bond inflows) to Indonesia, as well as the responses of the portfolio inflows to shocks to these factors.The results indicated that there was a long-term relationship between the variables, so SCVAR approach could be employed in this study. The results of the impulse responses function showed that the portfolio inflows in the form of bonds generated positive response to the unexpected changes of budget deficit and domestic output growth, while the portfolio inflows in the form of stocks generated positive response to the unexpected changes in foreign output growth, domestic output growth, stock price index, and budget deficit. Furthermore, the results of variance decomposition analysis showed that pull factors, i.e. domestic interest rate and current account balance, were the main determinants that explained the variation of portfolio inflows in the form of bonds, while the domestic interest rate and stock price index were the most dominant variables that explained the variation of portfolio inflows in the form of stocks.

Suggested Citation

  • Mr Insukindro & Arti Adji & Aryo Aliyudanto, 2014. "Analysis of the Unanticipated Factors in Portfolio Inflows to Indonesia: A SCVAR Approach, 2000: Q1 - 2012: Q4," EcoMod2014 7019, EcoMod.
    • Handle: RePEc:ekd:006356:7019
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    References listed on IDEAS

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    Keywords

    Indonesia; Macroeconometric modeling; Modeling: new developments;
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