An econometric model of the monetary sector in Indonesia

Aims to develop an econometric model of the Indonesian monetary sector over the period, 1969-80. Before such a model was constructed, the hypothesis that there is a causal relationship between money supply and the aggregate price index was tested, using quarterly data. The hypothesis of a causal relationship from prices to money was supported while the hypothesis of contemporaneous causality could not be easily dismissed. In the model, both money supply and the aggregate price index were used as endogenous variables and they were decomposed into several disaggregates. The possibility of a structural break after the oil price shock (post-1973) was examined using forecasting criteria. The predictive performance for 1969-73 is better than for 1974-80.-Authors