The Influence of Global Financial Liquidity on the Indonesian Economy: Dynamic Analysis with Threshold VAR

Empirical studies of the global liquidity spillover on Indonesia’s economy are still relatively limited. Most contagion literature focuses only effects real shock (on output) due to financial shock. We assert that effect output Indonesia macroeconomic conditions is a fairly relevant issue be studied. This research aims investigate interdependent relationships between world GDP, commodity prices, inflation, trade flows, capital inflow, account transactions, reserve accumulation, (e.g., broad money), and monetary aggregates, with regard GDP variables inflation. paper uses threshold vector autoregression (TVAR) capture regime changes in economy. World economic data were utilized prove different responses situation two regimes. identified groups upper lower variables—namely, prices. TVAR estimation resulted smaller residual sum squares compared VAR estimation. Different regimes differences variables. The findings generated by this expected insightful policymakers Indonesia.