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The Impacts of Government Spending and Monetary Policy Rate in Indonesia

Author

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  • Yuniarto Hadiwibowo

    (Polytechnic of State Finance STAN, Indonesia)

  • Akhmad Priharjanto

    (Polytechnic of State Finance STAN, Indonesia)

Abstract

This study reviews the impacts of government policies on the economy. The period of analysis starts from early banking sector reform until the current Covid-19 pandemic crisis. We apply Vector Error Correction Model based on the theory of money demand and inflation to analyze the relationships among income, inflation, money balance, government spending, and policy interest rate. The impacts of money balance and policy interest rate on income are as predicted by money demand. Financial sector growth and different expectation on inflation affect the efficacy of monetary policy. On the other hand, government spending might not be fully growth-enhancing. The need emerges to classify and distinguish the classes of government spending which increase growth.

Suggested Citation

  • Yuniarto Hadiwibowo & Akhmad Priharjanto, 2021. "The Impacts of Government Spending and Monetary Policy Rate in Indonesia," European Journal of Business and Management Research, European Open Science, vol. 6(6), pages 183-187, November.
    • Handle: RePEc:epw:ejbmr0:v:6:y:2021:i:6:id:51176
    DOI: 10.24018/ejbmr.2021.6.6.1176
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