DOES FINANCIAL DEVELOPMENT ABSORB OR AMPLIFY THE SHOCK?

Authors

Meily Ika Permata
Ibrahim Ibrahim
Hidayah Dhini Ari

Document Type

Article

Abstract

This paper analyzes the role of financial development on economic output in Indonesia. Using vector autoregressive method, the results confirm the positive impact of financial development on output growth. The interaction between the financial development and the shock either in financial or real sector shows that the financial development has a positive role to dampen the negative impact of the shock on the output growth, while strengthen the positive one. Another variable on the model, which significantly affect the output growth are excess money, term of trade, and the price. Compare to these variables, the marginal effect of financial development on output is smaller.

Recommended Citation

Permata, Meily Ika; Ibrahim, Ibrahim; and Ari, Hidayah Dhini (2011) "DOES FINANCIAL DEVELOPMENT ABSORB OR AMPLIFY THE SHOCK?," Bulletin of Monetary Economics and Banking: Vol. 14: No. 2, Article 9.
DOI: https://doi.org/10.21098/bemp.v14i2.81
Available at: https://bulletin.bmeb-bi.org/bmeb/vol14/iss2/9

First Page

107

Last Page

126

Creative Commons License

This work is licensed under a Creative Commons Attribution-NonCommercial 4.0 International License

Country

Indonesia

Affiliation

Bank Indonesia