The Impacts of Government Spending and Monetary Policy Rate in Indonesia
##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
References
-
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
1
-
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
2
-
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
3
-
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
4
-
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
5
-
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
6
-
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
7
-
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
8
-
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
9
-
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
10
-
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
11
-
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
12
-
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
13
-
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
14
-
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
15
-
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
16
-
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
17
-
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
18
-
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
19
-
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
20
-
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
21
-
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
22
-
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
23
-
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
24
-
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
25
-
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
26
-
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
27
-
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
28
-
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
29
Most read articles by the same author(s)
-
Akhmad Priharjanto,
Fadlil Usman,
Nina Andriana,
Dini Anggraini,
The Influence of Recruitment and Training with HR Competence as Intervening, as well as Reward, to Performance of Village-Owned Enterprises , European Journal of Business and Management Research: Vol. 8 No. 1 (2023) -
Yuniarto Hadiwibowo,
Raynal Yasni,
Assessing Monetary Model of Exchange Rate Determination: Case of Indonesia , European Journal of Business and Management Research: Vol. 5 No. 6 (2020)