Document Type
Article
Abstract
This paper investigates the implication of macro-financial linkages to explain the interaction of the financial and business cycles as the primary contributor to understanding the fluctuations in the Indonesian economy. It attempts to capture the interaction of the global financial and domestic business cycles through portfolio flow by incorporating investor behavior through a preference for domestic asset classes. Furthermore, due to information asymmetries between lenders and borrowers, we include the monitoring cost to explain the transaction cost in the credit market as a factor that drives macroeconomic fluctuations. Our findings demonstrate how financial imperfections can amplify the impact of global financial cycles on domestic business cycles. The demand for riskier investment illustrates how risk-taking behavior impacts capital flow and contributes to the endogenous amplification of economic cycle.
Recommended Citation
Budiman, Advis; Juhro, Solikin M.; and Safuan, Sugiharso
(2024)
"Capital Flow and Bank Lending Channels in a Small Open Economy: Evidence from Indonesia,"
Bulletin of Monetary Economics and Banking: Vol. 27:
No.
2, Article 1.
DOI: https://doi.org/10.59091/2460-9196.2190
Available at:
https://bulletin.bmeb-bi.org/bmeb/vol27/iss2/1
First Page
265
Last Page
298
Creative Commons License
This work is licensed under a Creative Commons Attribution-NonCommercial 4.0 International License
Country
Indonesia
Affiliation
University of Indonesia
