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A Structural Vector Auto-Regression Model of The Indonesian Economy

Author

Listed:
  • Siwage Dharma Negara

    (Economic Research Centre, The Indonesian Institute of Sciences (LIPI))

Abstract

This paper attempts to model the Indonesian economy using a structural Vector Auto- Regression framework. The objective of the paper is to build a model which can capture the dynamics of most of the important macroeconomic variables in the Indonesian economy. The structure of the model explicitly defines the inter-relationship between the Indonesian economy and the world economy. The fit of the model is evaluated based on its prediction about the effects of a monetary policy shock on the macroeconomic variables. In addition, the model is also evaluated on its prediction about the effect of an oil price shock on the Indonesian economy. The model is able to produce some reasonable predictions about the effects of monetary policy and oil price shock on the economy. The choice of sample period and treatment for structural breaks in the data are important for the model to produce reasonable dynamics of price and exchange rate variables with regard to the two types of shock.

Suggested Citation

  • Siwage Dharma Negara, 2008. "A Structural Vector Auto-Regression Model of The Indonesian Economy," Economics and Finance in Indonesia, Faculty of Economics and Business, University of Indonesia, vol. 56, pages 135-156, August.
    • Handle: RePEc:lpe:efijnl:200808
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    More about this item

    Keywords

    Structural VAR; Block Exogeneity; Monetary Policy; Exchange Rate; Oil Price;
    All these keywords.

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics

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