Document Type
Article
Abstract
One of the Government programs to spur economic growth is to improve the availability andquality of infrastructure through increased government spending on infrastructure development. In this paper, we build a DSGE model for a small open economy to predict the impact of government spending on output and welfare in Indonesia. The DSGE model uses parameters in line with the characteristics of Indonesian economy. The simulation results show that in the short run a 1% increase in government spending on consumption and investment could potentially increase economic growth by 0.04% and 0.05%, respectively. Output multiplier of government spending on consumption is estimated at 0.03, much lower than output multiplier of the government spending on investment at 0.20. The simulation results also show that government spending on investment leads to welfare improvement with welfare multiplier at 0.05. On the other hand, an increase in government spending on consumption would leadto a decline in welfare with a multiplier of -0.001.
Recommended Citation
Sahminan, Sahminan; Utama, Ginanjar; Rakman, Robbi Nur; and Idham, Idham
(2017)
"A DYNAMIC STOCHASTIC GENERAL EQUILIBRIUM (DSGE) MODEL TO ASSESS THE IMPACT OF STRUCTURAL REFORMS ON THE INDONESIAN ECONOMY,"
Bulletin of Monetary Economics and Banking: Vol. 20:
No.
2, Article 4.
DOI: https://doi.org/10.21098/bemp.v20i2.810
Available at:
https://bulletin.bmeb-bi.org/bmeb/vol20/iss2/4
First Page
149
Last Page
180
Creative Commons License
This work is licensed under a Creative Commons Attribution-NonCommercial 4.0 International License
Country
Indonesia
Affiliation
Bank Indonesia