Currency Crisis Effect on the Stock Market: A Case Study in Indonesia

Monday, December 1, 2008

Currency Crisis Effect on the Stock Market: A Case Study in Indonesia. This essay has analyzed the Indonesian currency crisis by empirically examining relationships between the composite share price index and sectoral stock indices of the Jakarta Stock Exchange and the exchange rate. The results show that changes in composite price index and property and real estate, financial indices provided early indication of the currency crisis when the central bank applied a managed float regime. The VAR test shows that these stock indices (in differences) caused exchange rate changes before the crisis period.

There has been a strong causality relationship from the rupiah exchange rate to the composite share price index and all the stock indices during the post crisis period. All stock market indices can be explained by the exchange rate changes. The tradable goods producers such as mining and manufacturing have positive sensitive to exchange rate changes. They become better off when the exchange rate depreciates. On the other hand, non-tradable goods producers such as property and real estate and infrastructure will become worse off when the exchange rate depreciates.

The causality relationship between the exchange rate and the stock market indices disappeared during the peak crisis period. Many factors influenced the exchange rate, such as a social and political instability and a loss of confidence by investors.

This study has implications for monitoring financial markets. Currently, the monitoring practice for the financial sector is based on a portfolio approach, often relying on low frequency data, due to the reporting practices of financial entities. However, high frequency financial indices such as stock indices can supplement some deficiencies of the conventional method, as the stock indices such as the composite share price index, financial, property and real estate indices showing early indicator currency crisis, especially in the pre-crisis period.
Finally, for further research we can relax the assumption of a constant interest rate and develop the model considering the time-varying interest rate. This is because we should consider the variation of domestic interest rates in order to improve the goodness of fit of the model.

Complete paper in English

Summary paper in Indonesia language.

Keyword: Composite Index, Currency Crisis, Exchange rate, Financial, Jakarta Stock Index, Rupiah, Stock Market



Sunday, November 16, 2008

In the last decade, the issue of unit root test for heterogenous panels has attracted many academic researchers. In principle the application of the panel data unit root test is intend to increase the power of test by increasing number of sample. Increasing amount of sample can be done by increasing the number of cross sectional data and the number of time series data. The problem emerge in panel data are the issue of structural change when using long data series or contain heterogeneity when using cross sectional data. The famous example unit root test for homogenous panel was Summer and Heston (1991) using a panel data set covering a variety of industry, region, various country with a long period of time.
Unit root test has been developed by Quah (1992.1994), Levin and Lin (1993) for homogenous panels. That testing the unit root can not accommodate heterogeneity between groups, such as the unique influence of individuals (individual special effects) and a different pattern of residual serial correlations. Test statistics that proposed by Quah, Levin and Lin can more be used with the conditions for the existence of specific individual effects and also heterogeneity across groups and then requires N / T -> 0 and two N (cross section dimension) and T (time series dimension) toward unlimited.

Pesaran and Smith (1995), and Pesaran, Smith and Im (1996) showed that the inconsistencies in the estimation model dynamic heterogeneous panels. Furthermore, based on the paper, the Im, Pesaran and Shin (2002) introduced the unit root test with dynamic heterogeneous panels. In general, the unit root test with dynamic heterogeneous more used compared with the homogenous dynamic. Im, Pesaran and Shin (IPS) framework using the likelihood procedure based on an alternative test average unit root test statistics in each individual group for the panel. IPS was testing based on the average (augmented) Dickey Fuller (1979), which refers to the t - test bar. Such as procedures performed by Levin and Lin, unit root test done by the IPS is to consider the characteristics of serial correlation dynamics and heterogeneity residues for each panel group. Statistics (IPS) is indicated in the convergence of the standard normal probabilities in line with sequential T to unlimited number, and followed by the N to unlimited number, where T is the time series dimension and N is the cross sectional dimension. The diagonal convergence between T and N to unlimited number, while NT -> k, where k is a constant non-negative limited number. In special cases, where the residual of the individual DF Regression are serially correlated, then Z ~ tbar which is a modified t-stat will distributed with the normal standard at the time of N → ∞ and T fixed, so that the length of T> 5 for the regression with the intercept and DF T> 6 for DF regression with intercept and linear time trends. Next, the test was also developed to test how T and N fixed with the average DF. Simulation results that with the big ordo of the ADF regression; the performance of the limited sample t-bar test is very satisfactory and gives better results than Levin-Lin (LL) test. Therefore, in this paper will attempt to simulate formulas and procedures of Pesaran.

Complete Paper in Indonesia Language.
Summary Paper in Indonesia Language.


Estimation Non Linier Model with Genetic Algoritma

In general, estimates in Model Non Linier method using OLS (Ordinary Least Square) or ML (Maximum Likelihood) with conventional algorithms method such as Gause-Newton; Rhapson-Newton, Levenberg-Marquardt; Berndt, Hall, Hall & Hausman or the quadratic Hill-Climbing. These Algorithms will not produce a global minimum / maximum. In this paper will explain the new approach, namely Genetic Algorithm to ensure global maximum/ minimum. Monte Carlo simulation is used to guarantee the results Robusness estimates. Computing used MATLAB.

Download if you want to get the full paper: Genetic Algoritma.pdf



Friday, October 3, 2008

In the theory of economic growth, sources of economic growth, sources of growth - comes from the ability of a country in developing potential resources. Quality and the greater the higher the quality of resources, it also has a greater potential to increase a country's economic growth. Factors that are important in sources of growth are natural resources, capital, saving, and development of technology. Property natural resources would help the economy of a country, although not enough if not supported by the skill of exploration for natural resources.

Both capital and saving is also a factor of production as the dominant element of economic growth for the future. Similarly, the development of technology can be widely accepted as a source of economic growth. This is because the technology that allows for manufacturers to produce more with the same input level. The development of technology depends on the ability of science and the quality of education of a country and how much attention on research and development.

Results of empirical studies of economic growth showed that the relationship is strong economic development of a country with a capacity of human capital the country. However, the dynamic relationship between economic growth with human capital and research & development can be explained since the 1980 when Romer and Lucas describe the relationship with the growth model endogenous or new growth theory.

In this paper will try to explain briefly the history of development of the economics of growth theory and briefly review the core of neoclassical model and endogenous growth models. Then, this paper will explain the role of accumulation of human capital and research & development in the economic development. Finally, this paper will review the role of the public sector and policy implications in the process of accumulation of human capital and investment of R & D to contribute to economic growth.

Summary paper in Indonesia language.

Complete paper in Indonesia language


NonLinier Estimation using OLS and Max Likelihood

Paper will report the results experiment model nonlinear to estimate production function Cobb-Douglas and CES using the Least Square method Nonlinear and Non-Linier Maximum Likelihood. Model estimation method linier used non-conventional approach Algorithm Gause-Newton; Rhapson-Newton, Levenberg-Marquardt; Berndt, Hall, Hall & Hausman or the quadratic Hill-Climbing. In this paper will describe the approach. Monte Carlo simulation is used to guarantee the results Robusness estimates. Computing used MATLAB.

Download if you want to complete any posts [Non Linier.pdf] dan [Lampiran]


Ordinary Least Square Estimation in Linier Model and Monte Carlo Simulation

Thursday, October 2, 2008

Ordinary Least Square Estimation in Linier Model and Monte Carlo Simulation. In general methods of estimation in Model Linier used OLS (Ordinary Least Square) or ML (Maximum Likelihood). In this Paper describes theoretically how the estimate methods are. Monte Carlo simulation is used to guarantee the results robusness estimates. Computing used MATLAB. Econometric. Ekonometrik

Download if you want to get the full paper: (1)cover.pdf; (2)daftar-isi.pdf; (3)isi.pdf

Keyword: Econometric, Ekonometrik, Estimation, MATLAB, Maximum Likelihood, Monte Carlo, OLS, Ordinary Least Square, Simulasi, Simulation.


New Keynesian Macroeconomics Model for Indonesia

In the recent years many academic interested in New Keynesian Small Macroeconomic model that is developed in the mid of 90's as a response from Lucas Critique on macroeconomic Keynesian (IS-LM) in early 80's. Repairs carried out on Keynesian model with a base to build models based on micro foundation (house hold and firm optimization) and incorporate aspects of rational expectation.

In the beginning New Keynesian Small Macroeconomic model was built for a closed economy model for the small country (in the sense that the influence of a small country of the world economy). Then around the beginning of the year 2000’s model developed for the open economy. Main core (standard model) this New Keynesian Small Macroeconomic model is the three equation such as; the aggregate demand equation (which was formed from the optimization intertemporal consumption of house hold); the aggregate supply (which was formed Maximization of discounted future profit company); and the rule of Monetary (Taylor rule).

At this time the researchers continue to develop based on the standard model with a special specifications are: the aggregate supply; add capital factors; add a factor in oil prices. Similarly, many models have been used by the Central Bank in some countries and used by the IMF as forecasting and policy analysis system Model (FPAS) to evaluate the macroeconomic state of the member-countries.

Download if you want to complete any posts [New Keynesian.pdf]


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