Structural Shocks and Macroeconomic Conditions in Indonesia
Structural Shocks and Macroeconomic Conditions in Indonesia

Summary/Abstract: The objective of this paper is to examine the impacts of structural shocks that lead to macroeconomic weakening in Indonesia during the recovery phase after the global financial crisis. We use real business cycle (RBC) and New Keynesian approach to identify the structural shocks and utilize the Structural Vector Autoregression (SVAR) model to build a macro-econometric model and to analyze the relationships between the shocks and macroeconomic variables. The sample that are used are quarterly data from the Census and Economic Information Center (CEIC) database and Statistik Ekonomi dan Keuangan Indonesia (SEKI) Bank Indonesia from 2007–2019. The results show that production shocks lead to an increase in unemployment and exchange rate shocks lead to depreciation of rupiah against dollar. Aggregate supply shocks, however, only have a relatively small impact on inflation. The effects of aggregate demand shocks on output vary, depending on the source of the shocks. Monetary policy shocks lead to an increase in the central bank interest rate.

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