The Effectiveness of Monetary Policy and the Effect of Global Economic Shock on Net Financial Accounts in Indonesia

Abstract

The majority of recent research has looked at the effect of the crisis on capital flows. Using Indonesia as a case study, this study examines the efficacy of monetary policy and the impact of global economic shocks on the Net Financial Account, a component of the Balance of Payments, from 1989 to 2020. Dummy variables were used to assess global economic shocks for three crisis periods: the Asian financial crisis in 1998, the global financial crisis in 2008, and the Covid-19 pandemic, which has been ongoing since the end of 2019. The Autoregressive Distributed Lag (ARDL) model was used to examine the long-term and short-term relationships between variables. The findings of the calculation reveal that all variables, that is, monetary policy and global economic shocks, have a short-term and long-term relationship with the Net Financial Account. It is advised that the government and monetary authorities continue to improve economic fundamentals, including financial system stability.