Analysis of the Unanticipated Factors in Portfolio Inflows to Indonesia: A SVAR Approach: 2001-2012

After the 2008 global economic crisis, as one of the emerging markets, Indonesia has experienced a lot of capital inflows. The increase in capital inflows has stimulated economic activities and caused macroec onomic fluctuations. This study focuses on the analysis of pull and push factors that affect the portfolio capital inflows to Indonesia. The study utilizes structural vector autoregressive (SVAR), impulse responses function (IRF), and variance decomposition (VD) methods. The method of SVAR is used 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 findings indicate that SVAR approach can be employed in this study. The results of the impulse responses functions show that the portfolio inflows in the form of bonds generate positive response to the unexpected changes of budget deficit and domestic output growth, while the portfolio inflows in the form of stocks generate 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 indicate that domestic interest rate and current account balance are the main determinants that explained the variation of portfolio inflows in the form of bonds, while the domestic interest rate and stock price index are the most dominant variables that explained the variation of portfolio inflows in the form of stocks.