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Prospective External Shocks and Indonesian Economic Performance

Author

Listed:
  • Prayudhi Azwar

    (Business School, University of Western Australia and Bank Indonesia)

  • Rod Tyers

    (Business School, University of Western Australia and Centre for Applied Macroeconomic Analysis (CAMA) Crawford School of Government, Australian National University)

Abstract

The post-GFC era sees slower global growth, unusually combined with lower investment financing costs, a substantial Chinese slowdown and with the eventual prospect of a US-led re-tightening of global financial markets. For Indonesia in the medium term, these developments imply a slowing of export growth and a temporary surge in net inward investment incentives. These changes are examined here using a numerical macro model. The results suggest that recent fiscal reform is long run beneficial and that it will moderate the negative effects of expectations linked to the eventual financial tightening. Indeed, results depend importantly on whether expectations are formed on the short run effects or the prospective tightening. Expectations retard growth in either case. Depending on magnitudes, the prospect of financial tightening may be preferable to nearer term financial easing that is combined with comparatively unattractive export moderation.

Suggested Citation

  • Prayudhi Azwar & Rod Tyers, 2016. "Prospective External Shocks and Indonesian Economic Performance," Economics Discussion / Working Papers 16-19, The University of Western Australia, Department of Economics.
    • Handle: RePEc:uwa:wpaper:16-19
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