Year: 2018
Type: article
Abstract: SETIASTUTI, SEKAR UTAMI.Essays on Fiscal Policy Issues in Small Open Economies.(Under the direction of Nora Traum.)This dissertation studies government intervention in the domestic oil market of a small open economy characterized as a net oil-importing country.Particularly, it focuses on (1) the dynamic response of macroeconomic aggregates to a world oil price shock and the welfare analysis of households under different degrees of intervention, and on (2) the macroeconomic impacts of fuel subsidy reform in the economy.Chapter 1 employs a Bayesian time-varying parameter structural vector autoregression model to examine the impact of fluctuations in world oil inflation on domestic consumer prices (CPI) inflation in Indonesia.Several results are obtained from the estimation.First, the passthrough of world oil inflation to CPI inflation is time-varying.At all dates, it is positive but very low in the short-run.The Indonesian government has controlled and subsidized the domestic price of fuel products (e.g.Research Octane Number (RON) 88 gasoline and diesel)and this policy partly explains the limited and incomplete pass-through.Second, the short-run pass-through declines gradually over time even though the government increased the price of those fuel products by more than 200 percent from 2005 to late 2014.Third, the inflationary effect of a world oil price shock seems to vary depending on the direction of the fuel price adjustments.After the government increases the amount of subsidies (or lowers the prices of fuel), a world price shock triggers inflation and instead of dampening output, the shock stimulates it-a dynamic consistent with a demand-pull inflation.Chapter 2 studies the macroeconomic effects of a government intervention in the domestic fuel market and estimates the degree of intervention that maximizes welfare.Estimating a New Keynesian Dynamic Stochastic General Equilibrium (NK-DSGE) model to the Indonesian economy via Simulated Method of Moments, I find that under a very high degree of intervention, a world oil price shock triggers a slight contraction of output, consumption, and investment.
Author: Sekar Utami Setiastuti
Language: English
Subfield: Economics and Econometrics
Domain: Social Sciences
Open Access status: green
OpenAlex ID: W2884553733