Open AccessThe Impacts of Government Spending and Monetary Policy Rate in Indonesia
Author(s) -
Yuniarto Hadiwibowo,
Akhmad Priharjanto
Publication year - 2021
Publication title -
european journal of business and management research
Language(s) - English
Resource type - Journals
ISSN - 2507-1076
DOI - 10.24018/ejbmr.2021.6.6.1176
Subject(s) - economics , monetary economics , monetary policy , inflation (cosmology) , interest rate , government spending , money supply , government (linguistics) , broad money , financial crisis , real interest rate , balance (ability) , macroeconomics , economic policy , market economy , medicine , linguistics , philosophy , physics , theoretical physics , welfare , physical medicine and rehabilitation
This study reviews the impacts of government policies on the economy. The period of analysis starts from early banking sector reform until the current Covid-19 pandemic crisis. We apply Vector Error Correction Model based on the theory of money demand and inflation to analyze the relationships among income, inflation, money balance, government spending, and policy interest rate. The impacts of money balance and policy interest rate on income are as predicted by money demand. Financial sector growth and different expectation on inflation affect the efficacy of monetary policy. On the other hand, government spending might not be fully growth-enhancing. The need emerges to classify and distinguish the classes of government spending which increase growth.