A Structural Vector Auto-Regression Model of The Indonesian Economy

Siwage Dharma Negara
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Siwage Dharma Negara: Economic Research Centre, The Indonesian Institute of Sciences (LIPI)

Economics and Finance in Indonesia, 2008, vol. 56, 135-156

Abstract: This paper attempts to model the Indonesian economy using a structural Vector Auto- Regression framework. The objective of the paper is to build a model which can capture the dynamics of most of the important macroeconomic variables in the Indonesian economy. The structure of the model explicitly defines the inter-relationship between the Indonesian economy and the world economy. The fit of the model is evaluated based on its prediction about the effects of a monetary policy shock on the macroeconomic variables. In addition, the model is also evaluated on its prediction about the effect of an oil price shock on the Indonesian economy. The model is able to produce some reasonable predictions about the effects of monetary policy and oil price shock on the economy. The choice of sample period and treatment for structural breaks in the data are important for the model to produce reasonable dynamics of price and exchange rate variables with regard to the two types of shock.

Keywords: Structural VAR; Block Exogeneity; Monetary Policy; Exchange Rate; Oil Price (search for similar items in EconPapers)
JEL-codes: C32 E52 F31 F41 (search for similar items in EconPapers)
Date: 2008
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Persistent link: https://EconPapers.repec.org/RePEc:lpe:efijnl:200808

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