The effect of twin-shock on monetary and fiscal policies in Indonesia
The research aims to investigate whether the monetary and fiscal policies in Indonesia interact with each other as well as the effect of twin shock on the coordination. The study employs the cointegration analysis and Error Correction Model (ECM) to estimate quarterly data from 2001:1 to 2016:4....
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| Format: | Article |
| Language: | English |
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Penerbit Universiti Kebangsaan Malaysia
2020
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| Online Access: | http://journalarticle.ukm.my/16878/ http://journalarticle.ukm.my/16878/1/jeko_54%282%29-12.pdf |
| Summary: | The research aims to investigate whether the monetary and fiscal policies in Indonesia interact with each other as well
as the effect of twin shock on the coordination. The study employs the cointegration analysis and Error Correction
Model (ECM) to estimate quarterly data from 2001:1 to 2016:4. The study has found the existence of consolidated
government budget constraint (GBC) that links the activities of fiscal authority (taxing, spending, and issuing the
bond) with the activities of the monetary authority in the short and long run. The study also found the coordination
between monetary and fiscal policies both in the short and long run. It is found that the short-run fiscal policy was
influenced by the long-run shock of the exchange rate and the short-run monetary policy was influenced by the short
and long-run shock of the price level. The study shows the importance of policy coordination in the currency and
budget deficit management. |
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