IDEAS home Printed from https://ideas.repec.org/a/idn/journl/v25y2022ispcp1-18.html
   My bibliography  Save this article

Is Indonesia’S Current Account Balance Optimal? Evidence From An Intertemporal Approach

Author

Listed:
  • Bhavesh Garg

    (Indian Institute of Technology Ropar)

  • K.P. Prabheesh

    (Indian Institute of Technology Ropar)

Abstract

This study investigates whether Indonesia’s Current Account (CA) balance is intertemporally solvent. We provide fresh evidence on Indonesia’s CA deficit solvency by considering post-crisis period data and conducting sub-sample analysis. Our findings suggest that Indonesia’s CA is not solvent. We notice evidence of excess lending prior to the global financial crisis of 2008 and excess borrowing in the post-crisis period. Policymakers need to focus on the composition of capital flows and management of volatile capital flows since discouraging foreign capital inflows may serve as a deterrent to economic growth.

Suggested Citation

  • Bhavesh Garg & K.P. Prabheesh, 2022. "Is Indonesia’S Current Account Balance Optimal? Evidence From An Intertemporal Approach," Bulletin of Monetary Economics and Banking, Bank Indonesia, vol. 25(Special I), pages 1-18, March.
    • Handle: RePEc:idn:journl:v:25:y:2022:i:spc:p:1-18
    DOI: https://doi.org/10.21098/bemp.v25i0.1843
    as

    Download full text from publisher

    File URL: https://bulletin.bmeb-bi.org/cgi/viewcontent.cgi?article=1866&context=bmeb
    Download Restriction: no
    File URL: https://libkey.io/https://doi.org/10.21098/bemp.v25i0.1843?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    References listed on IDEAS

    as
    1. Mr. Tim Callen & Mr. Paul Cashin, 1999. "Assessing External Sustainability in India," IMF Working Papers 1999/181, International Monetary Fund.
    2. Caballero, Ricardo & Gourinchas, Pierre-Olivier & Farhi, Emmanuel, 2015. "Global Imbalances and Currency Wars at the ZLB," CEPR Discussion Papers 10905, C.E.P.R. Discussion Papers.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Ricardo J. Caballero & Emmanuel Farhi & Pierre-Olivier Gourinchas, 2017. "The Safe Assets Shortage Conundrum," Journal of Economic Perspectives, American Economic Association, vol. 31(3), pages 29-46, Summer.
    2. Garcia-Hiernaux, Alfredo & Gonzalez-Perez, Maria T. & Guerrero, David E., 2023. "Eurozone prices: A tale of convergence and divergence," Economic Modelling, Elsevier, vol. 126(C).
    3. Bussière, Matthieu & Karadimitropoulou, Aikaterini E. & León-Ledesma, Miguel A., 2021. "Current Account Dynamics And The Real Exchange Rate: Disentangling The Evidence," Macroeconomic Dynamics, Cambridge University Press, vol. 25(1), pages 28-58, January.
    4. Sahoo, Manoranjan & Babu, M. Suresh & Dash, Umakant, 2016. "Long run sustainability of current account balance of China and India: New evidence from combined cointegration test," MPRA Paper 79013, University Library of Munich, Germany, revised 2016.
    5. Giancarlo Corsetti & Keith Kuester & Gernot J. Müller, 2017. "Fixed on Flexible: Rethinking Exchange Rate Regimes after the Great Recession," IMF Economic Review, Palgrave Macmillan;International Monetary Fund, vol. 65(3), pages 586-632, August.
    6. Emmanuel Farhi & Matteo Maggiori, 2018. "A Model of the International Monetary System," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 133(1), pages 295-355.
    7. Facundo Piguillem & Guillermo Ordonez, 2015. "Retirement in the Shadow (Banking)," 2015 Meeting Papers 1200, Society for Economic Dynamics.
    8. Del Negro, Marco & Giannone, Domenico & Giannoni, Marc P. & Tambalotti, Andrea, 2019. "Global trends in interest rates," Journal of International Economics, Elsevier, vol. 118(C), pages 248-262.
    9. Agnès Bénassy‐Quéré & Matthieu Bussière & Pauline Wibaux, 2021. "Trade and currency weapons," Review of International Economics, Wiley Blackwell, vol. 29(3), pages 487-510, August.
    10. Illing, Gerhard & Ono, Yoshiyasu & Schlegl, Matthias, 2018. "Credit booms, debt overhang and secular stagnation," European Economic Review, Elsevier, vol. 108(C), pages 78-104.
    11. Thorbecke, Willem, 2018. "The exposure of U.S. manufacturing industries to exchange rates," International Review of Economics & Finance, Elsevier, vol. 58(C), pages 538-549.
    12. Devi Prasad DASH & Debi Prasad BAL & Manoranjan SAHOO, 2016. "Nexus between defense expenditure and economic growth in BRIC economies: An empirical investigation," Theoretical and Applied Economics, Asociatia Generala a Economistilor din Romania / Editura Economica, vol. 0(1(606), S), pages 89-102, Spring.
    13. Gianluca Benigno & Luca Fornaro, 2018. "Stagnation Traps," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 85(3), pages 1425-1470.
    14. Jeanne, Olivier, 2021. "Currency Wars, Trade Wars, and Global Demand," CEPR Discussion Papers 16827, C.E.P.R. Discussion Papers.
    15. Anton Korinek, 2017. "Currency wars or efficient spillovers?," BIS Working Papers 615, Bank for International Settlements.
    16. Vadym Lepetyuk & Lilia Maliar & Serguei Maliar, 2017. "Should Central Banks Worry About Nonlinearities of their Large-Scale Macroeconomic Models?," Staff Working Papers 17-21, Bank of Canada.
    17. Andres Rodriguez-Clare & Mauricio Ulate & Jose P. Vasquez, 2020. "New-Keynesian Trade: Understanding the Employment and Welfare Effects of Trade Shocks," Working Paper Series 2020-32, Federal Reserve Bank of San Francisco.
    18. Ricardo J. Caballero & Emmanuel Farhi & Pierre-Olivier Gourinchas, 2017. "Rents, Technical Change, and Risk Premia Accounting for Secular Trends in Interest Rates, Returns on Capital, Earning Yields, and Factor Shares," American Economic Review, American Economic Association, vol. 107(5), pages 614-620, May.
    19. Anton Korinek, 2016. "Currency Wars or Efficient Spillovers? A General Theory of International Policy Cooperation," NBER Working Papers 23004, National Bureau of Economic Research, Inc.
    20. Engel, Charles, 2020. "Safe U.S. Assets and U.S. Capital Flows," Journal of International Money and Finance, Elsevier, vol. 102(C).

    More about this item

    Keywords

    Current account; Cointegration; Consumption-smoothing; Intertemporal solvency; Present value model;
    All these keywords.

    JEL classification:

    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • F30 - International Economics - - International Finance - - - General
    • F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements
    • F42 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - International Policy Coordination and Transmission

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:idn:journl:v:25:y:2022:i:spc:p:1-18. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Lutzardo Tobing or Jimmy Kathon (email available below). General contact details of provider: https://edirc.repec.org/data/bigovid.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.