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Post-GFC external shocks and Indonesian economic performance

Author

Listed:
  • Prayudhi Azwar
  • Rod Tyers

Abstract

The post-GFC era sees slower global growth and a substantial Chinese slowdown, unusually combined with lower investment financing costs, and with the eventual prospect of a US-led re-tightening of global financial markets. For Indonesia in the medium term, these developments imply a slowing of export growth and a temporary surge in net inward investment incentives. These changes are examined here using a numerical macro model. The results suggest that recent fiscal reform is long-run beneficial and that it will moderate the negative effects of expectations linked to these global events, the formation of which is shown to be an important determinant of performance. Finally, a sensitivity analysis is conducted, mainly on parameters indicating Indonesian openness to trade and finance. Liberal product markets and home investment are shown to offer unambiguous gains in the face of negative external shocks, while openness to external financial flows does not.

Suggested Citation

  • Prayudhi Azwar & Rod Tyers, 2016. "Post-GFC external shocks and Indonesian economic performance," CAMA Working Papers 2016-58, Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University.
  • Handle: RePEc:een:camaaa:2016-58
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    File URL: https://cama.crawford.anu.edu.au/sites/default/files/publication/cama_crawford_anu_edu_au/2016-09/58_2016_azwar_tyers_0.pdf
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    References listed on IDEAS

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    4. 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.
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    6. Tatjana Dahlhaus & Garima Vasishtha, 2014. "The Impact of U.S. Monetary Policy Normalization on Capital Flows to Emerging-Market Economies," Staff Working Papers 14-53, Bank of Canada.
    7. Ratna Sahay & Vivek B. Arora & Athanasios V Arvanitis & Hamid Faruqee & Papa M N'Diaye & Tommaso Mancini Griffoli, 2014. "Emerging Market Volatility; Lessons from The Taper Tantrum," IMF Staff Discussion Notes 14/9, International Monetary Fund.
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    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    Indonesia; External shocks; Exchange rates; Macroeconomic policy;

    JEL classification:

    • E37 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Forecasting and Simulation: Models and Applications
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • E47 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Forecasting and Simulation: Models and Applications
    • E65 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Studies of Particular Policy Episodes
    • F47 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Forecasting and Simulation: Models and Applications
    • N15 - Economic History - - Macroeconomics and Monetary Economics; Industrial Structure; Growth; Fluctuations - - - Asia including Middle East

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