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Balance Sheet Approach for Fiscal Sustainability in Indonesia


  • Jaka Sriyana

    (Department of Economics, Universitas Islam Indonesia, Yogyakarta, Indonesia,)

  • Abdul Hakim

    (Department of Economics, Universitas Islam Indonesia, Yogyakarta, Indonesia)


This paper models fiscal sustainability in Indonesia using the measure of liabilities-to-asset ratio (LAR), a simple measure of a country’s balanced-sheet. It uses the approach of conditional value-at-risk (VaR), assuming normal or t distributions, to define the risky level. The conditional standard deviation in the conditional VaR is modeled using a univariate generalized autoregressive heteroscedasticity (GARCH) family model. The conditional mean equation is modeled using a simple autoregressive equation. Using quarterly data from 1990 to 2014, the paper finds that the autoregressive term significantly influences the conditional mean of LAR. It also finds that both ARCH and GARCH terms significantly influence the conditional variance. Applying the conditional variance to calculate conditional VaR with 95% confidence level, and comparing the result with the actual LAR, it finds that there are no violations occurred during the period of estimation. This means that the fiscal sustainability in Indonesia is deemed safe. The violation occurs using the confidence level of 90% only.

Suggested Citation

  • Jaka Sriyana & Abdul Hakim, 2017. "Balance Sheet Approach for Fiscal Sustainability in Indonesia," International Journal of Economics and Financial Issues, Econjournals, vol. 7(1), pages 68-72.
  • Handle: RePEc:eco:journ1:2017-01-10

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    References listed on IDEAS

    1. Hausmann, Ricardo & Panizza, Ugo, 2003. "On the determinants of Original Sin: an empirical investigation," Journal of International Money and Finance, Elsevier, vol. 22(7), pages 957-990, December.
    2. Markus Rodlauer & Alfred Schipke, 2005. "Central America; Global Integration and Regional Cooperation," IMF Occasional Papers 243, International Monetary Fund.
    3. Alejandro Izquierdo & Ernesto Talvi & Guillermo A. Calvo, 2002. "Sudden Stops, the Real Exchange Rate and Fiscal Sustainability: Argentina's Lessons," Research Department Publications 4299, Inter-American Development Bank, Research Department.
    4. Bollerslev, Tim, 1986. "Generalized autoregressive conditional heteroskedasticity," Journal of Econometrics, Elsevier, vol. 31(3), pages 307-327, April.
    5. Fratzscher, Marcel & Bussière, Matthieu & Koeniger, Winfried, 2004. "Currency mismatch, uncertainty and debt maturity structure," Working Paper Series 409, European Central Bank.
    6. Engle, Robert F, 1982. "Autoregressive Conditional Heteroscedasticity with Estimates of the Variance of United Kingdom Inflation," Econometrica, Econometric Society, vol. 50(4), pages 987-1007, July.
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    More about this item


    Fiscal Sustainability; Liabilities-to-Asset Ratio; Univariate Generalized Autoregressive Heteroscedasticity; Conditional Value-at-Risk;

    JEL classification:

    • H62 - Public Economics - - National Budget, Deficit, and Debt - - - Deficit; Surplus
    • H63 - Public Economics - - National Budget, Deficit, and Debt - - - Debt; Debt Management; Sovereign Debt
    • H81 - Public Economics - - Miscellaneous Issues - - - Governmental Loans; Loan Guarantees; Credits; Grants; Bailouts


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