EAS Publisher | Fiscal Shocks and Macroeconomic Variables in Indonesia

Fiscal Shocks and Macroeconomic Variables in Indonesia

DOI : https://doi.org/10.36349/easjebm.2019.v02i12.009

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This study identifies the impact of fiscal policy shocks on macroeconomic variables in Indonesia. This study uses fiscal variables in the form of government consumption and other macroeconomic variables in the form of household consumption, portfolio investment, and the real exchange rate. The method used is to analyze the impulse response function of the VECM model estimated using quarterly data from 1990-2018. The results in this study are; Fiscal shocks are responded positively to household consumption and last for a long time (permanent response). Portfolio investment also responded positively but only until the second quarter, subsequently, investment responded negatively to fiscal shocks. Furthermore, fiscal shocks are responded negatively by the real exchange rate or the real exchange rate depreciates. Therefore, the results of this study become one of the empirical evidence of the effectiveness of fiscal policy in shaping the economy, especially to influence consumption, investment and the exchange rate.

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