The Effect of Intervening Variable towards Twin Deficit in Indonesia: The Application of Path Analysis

Erni Ummi Hasanah (), Jj. Sarungu (), Mulyanto, (), Am. Soesilo () and Suparjito, ()
Additional contact information
Erni Ummi Hasanah: Department of Development Economics Faculty of Economics Janabadra University Jl. T.R Mataram 55-56 Yogyakarta INDONESIA
Jj. Sarungu: 1st Building Fakultas Ekonomi dan Bisnis Universitas Sebelas Maret Jalan Ir. Sutami 36 A Surakarta Central Java Indonesia Post code: 57126 INDONESIA
Mulyanto,: 1st Building Fakultas Ekonomi dan Bisnis Universitas Sebelas Maret Jalan Ir. Sutami 36 A Surakarta Central Java Indonesia Post code: 57126 INDONESIA
Am. Soesilo: 1st Building Fakultas Ekonomi dan Bisnis Universitas Sebelas Maret, Jalan Ir. Sutami 36 A Surakarta Central Java Indonesia Post code: 57126 INDONESIA
Suparjito,: Regional Office of the Directorate General of Treasury Jl. Pasific Permai blok D7-D8 Jayapura Papua INDONESIA

Jurnal Ekonomi Malaysia, 2019, vol. 53, issue 2, 177-184

Abstract: This study examines twin deficits in Indonesia during the period of 1969-2015 using Path Analysis. Path analysis can test the direct and indirect effect of the variables studied and simultaneously identify the role of the intervening variables. Data used in this study include government budget deficit (BD) as the exogenous variable, interest rate (IR) and domestic exchange rate (FER) as the endogenous intervening variables, and deficit on the current account of balance of payment (DBOP) as the endogenous variable. This study found no direct effect between BD and DBOP. The finding indicates that an increase in budget deficit may not necessarily lead to an increase in current account deficits, and therefore do not prove twin deficits in Indonesia. Therefore, Mundell-Fleming’s theory in Indonesia is not applicable because the role of intervening variables (IR and FER) in mediating twin deficits is relatively weak.

Keywords: intervening variables; path analysis; twin deficits (search for similar items in EconPapers)
Date: 2019
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
http://www.ukm.my/jem/wp-content/uploads/2021/06/jeko_532-13.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:ukm:jlekon:v:53:y:2019:i:2:p:177-184

DOI: 10.17576/JEM-2019-5302-13

Access Statistics for this article

More articles in Jurnal Ekonomi Malaysia from Faculty of Economics and Business, Universiti Kebangsaan Malaysia Contact information at EDIRC.
Bibliographic data for series maintained by Muhammad Asri Abd Ghani ().