Spillovers of United States and People's Republic of China shocks on small open economies: The case of Indonesia

Arbeitspapier

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.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: ADBI Working Paper ; No. 616

Classification and Topics

• Classification: Wirtschaft ; Multiple or Simultaneous Equation Models: Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models ; General Aggregative Models: Forecasting and Simulation: Models and Applications ; Macroeconomic Aspects of International Trade and Finance: Forecasting and Simulation: Models and Applications
• Subject: Spillovers ; small open economies ; tapering off ; interest rate hike ; exchange rate devaluation ; real GDP ; PRC ; Indonesia

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Harahap, Berry A. ; Bary, Pakasa ; Panjaitan, Linda N. ; Satyanugroho, Redianto
• Event: Veröffentlichung
• (who): Asian Development Bank Institute (ADBI)
• (where): Tokyo
• (when): 2016

Further information

• Handle: http://hdl.handle.net/10419/163115
• Last update: 10.03.2025, 11:42 AM CET