The dynamics of fiscal and monetary policy on price and output in Indonesia

The objective of the paper is to analyze empirically the relative explanatory power of measures of fiscal and monetary policy in explaining movements of output and price in Indonesia by utilizing the Error Correction Model (ECM).  The relative importance of fiscal and monetary policy has long been one of the most debated issues in macroeconomics discussion.  While fiscal and monetary policy has been known to play important roles in the pursuit of macroeconomic stabilization both in developed and developing countries and many researchers have attempted to examine the impacts of fiscal and monetary policy on various aggregates using different techniques, but the results remains to be one of the most debated and tested issues in macroeconomics. The contribution of the paper is two-fold.  First, since there is a lack of coherent analytical framework in assessing the issue in the case of Indonesia, combine with diversities and experiences of fiscal and monetary policy in many developing countries, this paper contributes to the existing empirical literature through its analysis covering a specific developing country study and providing analysis based on the recent evidence and experience.  Second, the result of this paper will be helpful in facilitating the policy discussions on the effects of fiscal and monetary policy in Indonesia.