##plugins.themes.bootstrap3.article.main##

This study reviews the impacts of government policies on the economy. The period of analysis starts from early banking sector reform until the current Covid-19 pandemic crisis. We apply Vector Error Correction Model based on the theory of money demand and inflation to analyze the relationships among income, inflation, money balance, government spending, and policy interest rate. The impacts of money balance and policy interest rate on income are as predicted by money demand. Financial sector growth and different expectation on inflation affect the efficacy of monetary policy. On the other hand, government spending might not be fully growth-enhancing. The need emerges to classify and distinguish the classes of government spending which increase growth.

Downloads

Download data is not yet available.

References

  1. Abdullah, H., Yien, L. C., & Khan, M. A. (2019). The impact of fiscal policy on economic growth in ASEAN-5 countries. Int. J Sup. Chain. Mgt Vol, 8(1), 754. https://core.ac.uk/download/pdf/230748017.pdf.
     Google Scholar
  2. Abdurohman, A., & Resosudarmo, B. (2017). The behavior of fiscal policy in Indonesia in response to economic cycles. The Singapore Economic Review (SER), 62(02), 377-401. https://doi.org/10.1142/ S0217590816500041.
     Google Scholar
  3. Ahmed, H., & Miller, S. M. (2000). Crowding‐out and crowding‐in effects of the components of government expenditure. Contemporary Economic Policy, 18(1), 124-133. https://doi.org/10.1111/j.1465-7287.2000.tb00011.x.
     Google Scholar
  4. Alvarez, F., Lucas, R. E., & Weber, W. E. (2001). Interest rates and inflation. American Economic Review, 91(2), 219-225. https://doi.org/10.1257/aer.91.2.219.
     Google Scholar
  5. Azad, N. F., Serletis, A., & Xu, L. (2021). Covid-19 and monetary–fiscal policy interactions in Canada. The Quarterly Review of Economics and Finance, 81, 376-384. https://doi.org/10.1016/j.qref. 2021.06.009.
     Google Scholar
  6. Ayres, J., Garcia, M., Guillén, D. A., & Kehoe, P. J. (2019). The monetary and fiscal history of Brazil, 1960-2016 (No. w25421). National Bureau of Economic Research. https://www.nber.org/ papers/w25421.
     Google Scholar
  7. Ball, L. (2001). Another look at long-run money demand. Journal of Monetary Economics, 47(1), 31-44. https://doi.org/10.1016/S0304-3932(00)00043-X.
     Google Scholar
  8. Bianchi, F., & Ilut, C. (2017). Monetary/fiscal policy mix and agents' beliefs. Review of economic Dynamics, 26, 113-139. https://doi.org/ 10.1016/j.red.2017.02.011.
     Google Scholar
  9. Bordo, M. D., & Levy, M. D. (2021). Do enlarged fiscal deficits cause inflation? The historical record. Economic Affairs, 41(1), 59-83. https://doi.org/10.1111/ecaf.12446.
     Google Scholar
  10. Chen, X., Wohlfarth, P., & Smith, R. P. (2021). China's money demand in a Cointegrating Vector Error Correction Model. Journal of Asian Economics, 101338. https://doi.org/10.1016/j.asieco.2021. 101338.
     Google Scholar
  11. Ciro, J. C. G., & de Mendonça, H. F. (2017). Effect of credibility and reputation on discretionary fiscal policy: empirical evidence from Colombia. Empirical Economics, 53(4), 1529-1552. https://doi.org/ 10.1007/s00181-016-1177-2.
     Google Scholar
  12. Coenen, G., Straub, R., & Trabandt, M. (2012). Fiscal policy and the great recession in the euro area. American Economic Review, 102(3), 71-76. https://doi.org/10.1257/aer.102.3.71.
     Google Scholar
  13. Davig, T., & Leeper, E. M. (2007). Generalizing the Taylor principle. American Economic Review, 97(3), 607-635. https://doi.org/10.1257/aer.97.3.607.
     Google Scholar
  14. Dinh, D. V. (2020). Impulse response of inflation to economic growth dynamics: VAR model analysis. The Journal of Asian Finance, Economics, and Business, 7(9), 219-228. https://doi.org/10.13106/ jafeb.2020.vol7.no9.219.
     Google Scholar
  15. Forbes, K. (2019). Has globalization changed the inflation process? (No. 791). Bank for International Settlements. https://www.bis.org/ publ/work791.pdf?mod=article_inline.
     Google Scholar
  16. Goeltom, M. S. (2008). The transmission mechanisms of monetary policy in Indonesia. BIS Papers chapters, 35, 309-332. https://econpapers.repec.org/RePEc:bis:bisbpc:35-14.
     Google Scholar
  17. Ha, J., Ivanova, A., Ohnsorge, F., & Unsal, D. F. (2019). Inflation: Concepts, evolution, and correlates. World Bank Policy Research Working Paper, (8738). https://ssrn.com/abstract=3335611.
     Google Scholar
  18. Hoffman, D. L., & Rasche, R. H. (1996). Assessing Forecast Performance in a Cointegrated System. Journal of Applied Econometrics, 11(5), 495–517. http://www.jstor.org/stable/2285213.
     Google Scholar
  19. Juhro, S. M., & Iyke, B. N. (2019). Monetary policy and financial conditions in Indonesia. Buletin Ekonomi Moneter dan Perbankan, 21(3), 283-302. https://doi.org/10.21098/bemp.v21i3.1005.
     Google Scholar
  20. Ismal, R. (2011). Assessing economic growth and fiscal policy in Indonesia. Journal of Economics and Business, 14(1), 53-71. https://www.u-picardie.fr/eastwest/fichiers/art94.pdf.
     Google Scholar
  21. Linnemann, L. (2005). Can raising interest rates increase inflation? Economics Letters, 87(3), 307-311. https://doi.org/10.1016/j.econlet. 2004.12.020.
     Google Scholar
  22. Mankiw, N. G., & Summers, L. H. (1986). Money Demand and the Effects of Fiscal Policies. Journal of Money, Credit and Banking, 18(4), 415–429. https://doi.org/10.2307/1992462.
     Google Scholar
  23. Mankiw, N. G., Reis, R., & Wolfers, J. (2003). Disagreement about inflation expectations. NBER Macroeconomics Annual, 18, 209–248. https://doi.org/10.1086/ma.18.3585256.
     Google Scholar
  24. Montes, G. C., & de Hollanda Lima, N. T. (2021). Discretionary fiscal policy, fiscal credibility and inflation risk premium. The Quarterly Review of Economics and Finance. https://doi.org/ 10.1016/j.econmod.2018.03.007.
     Google Scholar
  25. Rousseau, P. L., & Wachtel, P. (2011). What is happening to the impact of financial deepening on economic growth? Economic Inquiry, 49(1), 276-288. https://doi.org/10.1111/j.1465-7295.2009. 00197.x.
     Google Scholar
  26. Sasongko, G., & Huruta, A. D. (2018). Monetary policy and the causality between inflation and money supply in Indonesia. Business: Theory and Practice, 19, 80-87. https://doi.org/10.3846/btp.2018.09.
     Google Scholar
  27. Tran, N. (2018). The long-run analysis of monetary policy transmission channels on inflation: a VECM approach. Journal of the Asia Pacific Economy, 23(1), 17-30. https://doi.org/10.1080/ 13547860.2018.1429199.
     Google Scholar
  28. Taylor, J. B. (1993, December). Discretion versus policy rules in practice. In Carnegie-Rochester conference series on public policy (Vol. 39, pp. 195-214). North-Holland. https://doi.org/10.1016/0167-2231(93)90009-L.
     Google Scholar
  29. Yien, L. C., Abdullah, H., & Azam, M. (2019). Monetarism or Keynesian Discourse in Indonesia. Bulletin of Indonesian Economic Studies, 55(3), 367-385. https://doi.org/10.1080/00074918.2019. 1576854.
     Google Scholar