Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/163115 
Year of Publication: 
2016
Series/Report no.: 
ADBI Working Paper No. 616
Publisher: 
Asian Development Bank Institute (ADBI), Tokyo
Abstract: 
This paper examines the impact of certain external shocks originating from the United States (US) and People's Republic of China (PRC) on Indonesia as a small open economy. The spillover effects of tapering off, an interest rate hike, exchange rate devaluation, and real gross domestic product (GDP) are analyzed. Two versions of the global vector autoregression model are employed, which covers 33 countries and considers both financial and trade relations among countries. Spillover assessments are conducted through impulse responses with 1,000 bootstrap replications, and compared to the responses of peer countries. The results suggest that the main risk for Indonesia's real GDP is a shock to the PRC's real GDP, while a US interest rate hike is the greatest risk to Indonesia's exchange rate depreciation in the short term, especially compared to the US tapering off. Moreover, the dominant transmission channel of US monetary tightening is through finance, dampening economic growth in small open economies.
Subjects: 
Spillovers
small open economies
tapering off
interest rate hike
exchange rate devaluation
real GDP
US
PRC
Indonesia
JEL: 
C32
E17
F47
Creative Commons License: 
cc-by-nc-nd Logo
Document Type: 
Working Paper

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