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The Determinants of Indonesia’s Business Cycle

Berry A. Harahap (), Pakasa Bary and Anggita Cinditya M. Kusuma ()
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Berry A. Harahap: Department of Economic and Monetary Policy at Bank Indonesia, Jakarta, Indonesia
Anggita Cinditya M. Kusuma: Department of Economic and Monetary Policy at Bank Indonesia, Jakarta, Indonesia

Journal of Central Banking Theory and Practice, 2020, vol. 9, issue special issue, 215-235

Abstract: This study investigates the determinants of Indonesian’s business cycle using the global vector autoregressive (GVAR) approach, by including spillover responses within 33 countries with 2000 bootstrap replications. The results show that Indonesia’s business cycle is influenced by both domestic and external factors. In addition to exogenous shocks from output, the dominant domestic factors are monetary policy and price competitiveness. The dominant external factors are global economic activity and liquidity conditions, particularly those originating from the Chinese economy. Spillovers from a number of economies appear to shape Indonesia’s economic fluctuations. The paper discusses such relevant spillovers.

Keywords: Business cycle; Trade relations; Global vector autogressive approach (search for similar items in EconPapers)
JEL-codes: E32 F44 E30 C22 (search for similar items in EconPapers)
Date: 2020
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