Volume 11, Issue 4, 647-656.

Building Economics Equilibrium Model Toward Macroeconomic Variables – New Consensus Macroeconomic Approach: Evidence from Indonesia

Marselina DJAYASINGA
Economics and Business Faculty, University of Lampung, Bandar Lampung, Indonesia. Email: ikbal_tawakal@yahoo.com.

ABSTRACT

Debt management and budget deficit in Indonesia is based on ACT No 17 of 2003 and followed by Government Regulation No 23 of 2003, in which government sets maximum limit on government debt of 60 % GDP and maximum limit on budget deficit of 3 %. This concept like Maastricht Treaty which is used in some Europe Countries which are facing high debt and to be default countries, and we worried about it. The weakness of this concept is that does not describe when government is supposed to do the policy deficit, balanced, or surplus budget. As long as GDP increases, government debt can be increased, regardless of whether the economy needs it or not. Debt burden make fiscal space is limited and it has been happened in Indonesia in 1990’s. It is important to build a equilibrium model to control debt and budget deficit and the important thing it keep fiscal sustainability and economic growth. Fiscal sustainability is happened if debt is kept stable. This research is conducted by using New Consensus Macroeconomic (MKB) school to make an optimal decision through inter temporal choices.Using micro foundation and adding debt stabilizing deficit variable, Arestis model was elaborated. The result found that deficit debt stabilizer in the model for a long term, gives positive impact on output gaps, the level of prices, exchange rates, current account, and primary budget deficits in Indonesia but it has no impact on the level of interest rates. Conversely, in a short term, debt deficit stabilizer in model gives positive impact toward output gap, exchange rate, and the primary deficit budget but it does not significantly influence interest rates, the level of price, and current account.

JEL Classification: C82; E60; E62.

Keywords: Fiscal Rule, Sustainability, Debt Stabilizing Deficit; Equilibrium Model.

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