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Indonesian Macro Policy through Two Crises

Listed author(s):
  • Prayudhi Azwar
  • Rod Tyers

Indonesia fielded shocks due to the Asian financial crisis (AFC) and the global financial crisis (GFC) quite differently. Financial contagion, policy misdirection, panic and political upheaval saw the AFC bring economic collapse. The decade-later GFC, however, brought real growth of 6.1% (2008) and 4.5% (2009), amongst the world’s best performances at the time. This paper reviews these events and employs numerical modelling of stylized AFC and GFC shocks to show that some of the contrast stems from differences in the shocks and intervening changes in economic structure. Critically, IMF conditionality during the AFC required unsustainably contractionary reforms. Capital flight elements were present in both crises, however, and exchange rate depreciations and money-financed fiscal expansions are shown to have contributed significantly to resolution.

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File URL: https://cama.crawford.anu.edu.au/sites/default/files/publication/cama_crawford_anu_edu_au/2016-06/16_2015_azwar_tyers_revised_may2016.pdf
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Paper provided by Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University in its series CAMA Working Papers with number 2015-16.

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Length: 41 pages
Date of creation: May 2015
Handle: RePEc:een:camaaa:2015-16
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  1. Vipin Arora & Rod Tyers & Ying Zhang, 2014. "Reconstructing the Savings Glut: The Global Implications of Asian Excess Saving," Economics Discussion / Working Papers 14-24, The University of Western Australia, Department of Economics.
  2. Lucy Rees & Rod Tyers, 2004. "On the Robustness of Short Run Gains from Trade Reform," CEPR Discussion Papers 474, Centre for Economic Policy Research, Research School of Economics, Australian National University.
  3. Gary B. Gorton, 2010. "Questions and Answers about the Financial Crisis," NBER Working Papers 15787, National Bureau of Economic Research, Inc.
  4. Rod Tyers, 2012. "Japanese Economic Stagnation: Causes and Global Implications," The Economic Record, The Economic Society of Australia, vol. 88(283), pages 517-536, December.
  5. Rose, Andrew K., 2014. "Surprising similarities: Recent monetary regimes of small economies," Journal of International Money and Finance, Elsevier, vol. 49(PA), pages 5-27.
  6. Arora, Vipin & Tyers, Rod, 2012. "Asset arbitrage and the price of oil," Economic Modelling, Elsevier, vol. 29(2), pages 142-150.
  7. Ivan Roberts & Rod Tyers, 2003. "China's Exchange Rate Policy: The Case for Greater Flexibility," Asian Economic Journal, East Asian Economic Association, vol. 17(2), pages 155-184, 06.
  8. Vahagn Galstyan & Philip R. Lane, 2009. "The Composition of Government Spending and the Real Exchange Rate," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 41(6), pages 1233-1249, 09.
  9. Michael T. Rock, 2003. "The Politics of Development Policy and Development Policy Reform in New Order Indonesia," William Davidson Institute Working Papers Series 2003-632, William Davidson Institute at the University of Michigan.
  10. World Bank, 2003. "Indonesia : Maintaining Stability, Deepening Reforms," World Bank Other Operational Studies 14631, The World Bank.
  11. Froot, Kenneth A. & Rogoff, Kenneth, 1995. "Perspectives on PPP and long-run real exchange rates," Handbook of International Economics,in: G. M. Grossman & K. Rogoff (ed.), Handbook of International Economics, edition 1, volume 3, chapter 32, pages 1647-1688 Elsevier.
  12. McCallum, Bennett T & Nelson, Edward, 1999. "An Optimizing IS-LM Specification for Monetary Policy and Business Cycle Analysis," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 31(3), pages 296-316, August.
  13. Kanit Sangsubhan & M. Chatib Basri, 2012. "Global Financial Crisis and ASEAN : Fiscal Policy Response in the Case of T hailand and I ndonesia," Asian Economic Policy Review, Japan Center for Economic Research, vol. 7(2), pages 248-269, December.
  14. Rod Tyers & Iain Bain & Yongxiang Bu, 2008. "China'S Equilibrium Real Exchange Rate: A Counterfactual Analysis," Pacific Economic Review, Wiley Blackwell, vol. 13(1), pages 17-39, 02.
  15. Rees, Lucy & Tyers, Rod, 2004. "Trade reform in the short run: China's WTO accession," Journal of Asian Economics, Elsevier, vol. 15(1), pages 1-31, February.
  16. Arianto A. Patunru & Tarsidin, 2012. "Recent Indonesian Economic Development and the Urgent Need to Remove Key Growth Obstacles," Asian Economic Papers, MIT Press, vol. 11(3), pages 57-77, October.
  17. Stephen Elias & Clare Noone, 2011. "The Growth and Development of the Indonesian Economy," RBA Bulletin, Reserve Bank of Australia, pages 33-43, December.
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