DOES FINANCIAL DEVELOPMENT ABSORB OR AMPLIFY THE SHOCK?

Meily Ika Permata (), Ibrahim () and Hidayah Dhini Ari ()
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Meily Ika Permata: Bank Indonesia
Ibrahim: Bank Indonesia
Hidayah Dhini Ari: Bank Indonesia

Bulletin of Monetary Economics and Banking, 2011, vol. 14, issue 2, 107-126

Abstract: This paper analyzes the role of financial development on economic output in Indonesia. Using vector autoregressive method, the results confirm the positive impact of financial development on output growth. The interaction between the financial development and the shock either in financial or real sector shows that the financial development has a positive role to dampen the negative impact of the shock on the output growth, while strengthen the positive one. Another variable on the model, which significantly affect the output growth are excess money, term of trade, and the price. Compare to these variables, the marginal effect of financial development on output is smaller.

Keywords: Financial development; shock; output volatility; VAR (search for similar items in EconPapers)
JEL-codes: E44 O16 (search for similar items in EconPapers)
Date: 2011
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Persistent link: https://EconPapers.repec.org/RePEc:idn:journl:v:14:y:2011:i:2e:p:107-126

DOI: 10.21098/bemp.v14i2.81

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