Examining global policy spillovers to indonesian financial and real markets

Details

Supervisors

Monti, Francesca

Faculty

Faculté des sciences économiques, sociales, politiques et de communication

Degree label

Master [60] en sciences économiques, orientation générale

Abstract

This research examines the impact of monetary policy shocks from the United States Federal Reserve (Fed) and European Central Bank (ECB) on the Indonesian economy, using a Vector Autoregression (VAR) model. Monthly data from January 2000 to October 2023 is utilized, with monetary policy shocks identified using the approach of Jarociński & Karadi (2020). The domestic variables analyzed include real GDP growth, current account balance, inflation, real effective exchange rate, capital flow volatility, net capital flows, and stock prices. Impulse response functions and forecast error variance decompositions are employed to assess the dynamic effects of the shocks. The results indicate that Fed shocks have a relatively stronger and more persistent impact on the Indonesian economy compared to ECB shocks. However, the overall influence of both shocks is limited, with domestic factors playing a dominant role in explaining fluctuations in Indonesian macroeconomic and financial variables. The findings highlight the importance of considering the source and nature of external monetary shocks when formulating policy responses in Indonesia and other emerging Asian economies.