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Do oil prices predict Indonesian macroeconomy?

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  • Sharma, Susan Sunila
  • Phan, Dinh Hoang Bach
  • Iyke, Bernard

Abstract

We examine, for the first time, whether oil price is a significant predictor of Indonesia’s 31 macroeconomic variables. Our analysis employs monthly time-series data over the period 1986 to 2018, and a recently advanced flexible generalised least squares estimator that simultaneously addresses persistency, endogeneity, and heteroskedasticity in the data. We show that oil price significantly predicts eight macroeconomic variables. For the remaining 23 macroeconomic variables, we report either that oil price does not predict them or that their predictability is dependent on the choice of the forecasting horizon. Our results are robust to alternative measures of oil prices.

Suggested Citation

  • Sharma, Susan Sunila & Phan, Dinh Hoang Bach & Iyke, Bernard, 2019. "Do oil prices predict Indonesian macroeconomy?," Economic Modelling, Elsevier, vol. 82(C), pages 2-12.
    • Handle: RePEc:eee:ecmode:v:82:y:2019:i:c:p:2-12
    DOI: 10.1016/j.econmod.2019.08.008
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    4. Mustafa Kocoglu & Phouphet Kyophilavong & Ashar Awan & So Young Lim, 2023. "Time-varying causality between oil price and exchange rate in five ASEAN economies," Economic Change and Restructuring, Springer, vol. 56(2), pages 1007-1031, April.
    5. Iyke, Bernard Njindan & Ho, Sin-Yu, 2021. "Exchange rate exposure in the South African stock market before and during the COVID-19 pandemic," Finance Research Letters, Elsevier, vol. 43(C).
    6. Martin Enilov, 2024. "The predictive power of commodity prices for future economic growth: Evaluating the role of economic development," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 29(3), pages 3040-3062, July.
    7. Xu, Qinhua & Fu, Buben & Wang, Bin, 2022. "The effects of oil price uncertainty on China’s economy," Energy Economics, Elsevier, vol. 107(C).
    8. Iyke, Bernard Njindan & Phan, Dinh Hoang Bach & Narayan, Paresh Kumar, 2022. "Exchange rate return predictability in times of geopolitical risk," International Review of Financial Analysis, Elsevier, vol. 81(C).
    9. Xin Sheng & Rangan Gupta & Qiang Ji, 2023. "The Effects of Disaggregate Oil Shocks on the Aggregate Expected Skewness of the United States," Risks, MDPI, vol. 11(11), pages 1-9, October.
    10. Liang Wang & Tingjia Xu, 2022. "Bidirectional Risk Spillovers between Exchange Rate of Emerging Market Countries and International Crude Oil Price–Based on Time-varing Copula-CoVaR," Computational Economics, Springer;Society for Computational Economics, vol. 59(1), pages 383-414, January.
    11. Preeti Sharma & Avinash K. Shrivastava, 2024. "Economic Activities and Oil Price Shocks in Indian Outlook: Direction of Causality and Testing Cointegration," Global Business Review, International Management Institute, vol. 25(3), pages 771-790, June.
    12. Yildirim, Zekeriya & Guloglu, Hasan, 2024. "Macro-financial transmission of global oil shocks to BRIC countries — International financial (uncertainty) conditions matter," Energy, Elsevier, vol. 306(C).
    13. Trabelsi, Nader & Tiwari, Aviral Kumar & Hammoudeh, Shawkat, 2022. "Spillovers and directional predictability between international energy commodities and their implications for optimal portfolio and hedging," The North American Journal of Economics and Finance, Elsevier, vol. 62(C).
    14. Tan, Yan & Uprasen, Utai, 2023. "Asymmetric effects of oil price shocks on income inequality in ASEAN countries," Energy Economics, Elsevier, vol. 126(C).

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