Transcript slides - Editorial Express

TRAPPED IN RESOURCE CURSE AFTER SURVIVED;
OIL PRICE AND INDONESIAN MACROECONOMIC
RELATION BEFORE AND AFTER ASIAN CRISIS
Ahmad Luthfi
Graduate School for International Development and Cooperation
The Basic Problems (World)
1
Energy is vital for our activities
2
Oil is still the main source of energy (at least) until 2040
3
Oil is both economic and political commodities
(flexible) (reference price)
OPEC (Maintain
the Production
Level)
Shale Oil Production
-> Increasing Oil
Supply
2015
4
Oil Price (Level, Volatility,Non Linier) has negative
2 impact to the economy
The Basic Problems
Previous Works
Main Results
Basic Idea for Proof
The Basic Problems (Indonesia)
Capital Investment
1/3 times
Fuel Subsidy 8.6 times
President
Energy/Fiscal
Policy
Indonesia is pointed as a role model
because survived from resource curse
(Rosser,2007),secured from oil price
shock (Mehrara & Oskui,2008) and
gets out from oil as primary income
source (Basri,2004)
?
3
The Basic Problems
Previous Works
Main Results
Basic Idea for Proof
Previous Works (Oil Price and Macroeconomic Relation)
• For Oil Exporting (Importing) Countries
The Impact of increasing oil price usually positive (negative) to the GDP, no matter the size,
but the impact is declining after 1980’s.
• For Oil Importing Countries
The Impact of oil price volatility/uncertainty usually negative to the GDP, no matter the
size.
Single Country
Oil
Exporter
Mixed
Oil
Importer
Multiple Countries
Small Country
Big Country
Similarities
Compare &
Contrast
Trinidad
Nigeria
OPEC
-
-
-
-
OECD
Tunisia
USA, China
Pacific Island
Countries
Brazil VS USA
My novelty : Single country (Indonesia) but trying to compare and contrast before
and after crisis and do counterfactual analysis on those periods
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The Basic Problems
Previous Works
Main Results
Basic Idea for Proof
Previous Works (Oil Price and Macroeconomic Relation)
Authors
(Jbir &
Gorbel,
2009)
Scope
Methodology
VAR (Real Oil Price,GDP,Price
Index,Government
Spending,Real Exchange
Rate) 1993 Q1- 2007Q4
Tunisia
Findings
Oil subsidy effectively transmits the oil
price shock
Oil price shocks
(Mehrara &
Oskui,
2008)
(Cavalcanti,
Jalles,
2013)
OPEC Members
(Iran, Saudi Arabia,
Indonesia,Kuwait)
Brazil (oil import
has decrease
sharply), USA (oil
import has increase
sharply
SVAR (Real Oil
Price,GDP,Price Index,Real
Exchange Rate) 1970-2002
SVAR (Oil
Price,GDP,Inflation,)
(1985-2008)
Saudi and Iran
Oil Price shocks has insignificant effect to
Indonesia (diversify income, prudent
fiscal policy) & Kuwait (stabilization and
savings fund)
1. Brazil : Oil price shock does not have a
clear impact on output growth, and only
account for very small fraction in
inflation.
2. USA: Oil price have a moderate effect
on output growth but decreasing over
time. The impact to inflation is larger
than to output growth
3. Output level would be roughly the
same but 10 % less volatile if the USA
had the actual Brazilian import share
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The Basic Problems
Previous Works
Main Results
Basic Idea for Proof
Main Results
(Oil Price  Macroeconomy (GDP,Inflation, Interest Rate,Fuel Subsidy, Unemployment)
Before Asian Crisis (1984-1997), The VAR Model shown that the impact
of oil was neutral to the Indonesian macroeconomic indicators, except
for fuel subsidy. In the first period, the fuel subsidy could be one of
factors which successfully protecting Indonesia from negative impact of
the oil price
In contrast, In Post Asian Crisis (1998 -2012), Indonesia’s
macroeconomic variables such as GDP Growth, Inflation, and Interest
Rate were influenced by the Oil Price.
GDP growth in first (second) period would have been 22% lower (32%
higher) if net-oil import share in first (second) period behaved similarly
with the second (first) period
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The Basic Problems
Previous Works
Main Results
Basic Idea for Proof
Basic Ideas for Proofs/Implementations
Research Questions

Do the oil prices (linier,volatility and non linier increase and decrease)have
significant effect to Indonesian macroeconomics indicators in before and after Asian
Crisis?

How real output growth in 1st period (1984 -1997) would had been if net oil import
share in 1st period behaved similarly to 2nd Period (1998 -2012) and vice versa
Research Objectives

Comparing the impact of oil price (linier,volatility and non linier increase and
decrease)have to Indonesia’s economic activities in before and after crisis

Predicting the effect of import dependency by counterfactual analysis
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The Basic Problems
Previous Works
Main Results
Basic Idea for Proof
8
Basic Ideas for Proofs/Implementations
No.
Variable
Formula
Oil Price (Level)
1.
ROPt ,q 
Source of Data
1 n
 ICPt ,q / CPI t ,q
n i 1
Ot= MAX[0,log(Oil Pricet)-log(MAX(Oil
Pricet-1, Oil Pricet-2,…, Oil Pricet-4)
Net Oil Price
Increase
(Non Linier)
(if the oil price higher than 4 previous
quarters)
Ot= MIN[0,log(Oil Pricet)-log(MIN(Oil
Pricet-1, Oil Pricet-2,…, Oil Pricet-4)
Net Oil Price
Decrease
(Non Linier)
Indonesian Crude Oil Price (ICP)
(Monthly data, released by
Ministry of Energy and Mineral
Resources)
(if the oil price lower than 4 previous quarters)
Indonesian Crude Oil Price (ICP)
2.
𝒎=𝟑
Quarterly Realized
Oil Volatility
(Monthly data, released by
(𝑹𝑬𝑻𝒎 )𝟐
𝑹𝑽𝒒𝒕 =
Ministry of Energy and Mineral
𝒎=𝟏
Resources)
International Financial Statistics
IMF
3.
GDP Growth
4.
Real Subsidy
5,6
Inflation rate,
Interest Rate
The Basic Problems
𝑺𝑼𝑩𝒒𝒕 =
(𝑮𝑴𝑷𝒒𝒕 – 𝑮𝑺𝑷𝒒𝒕 )
– 𝑮𝑺𝑷𝒒𝒕 )
𝟒
𝒒=𝟏(𝑮𝑴𝑷𝒒𝒕
Previous Works
𝒙 𝑺𝑼𝑩𝒕
Main Results
International Financial Statistics
IMF
International Financial Statistics
IMF
Basic Idea for Proof
Basic Ideas for Proofs/Implementations
Vector Autoregression Models
Introduced by Sims (1980), Vector autoregression (VAR) is an econometric model used to
capture the linear interdependencies among multiple time series. All variables in a VAR
are treated symmetrically in a structural sense.
𝐴11 (𝐿)
𝐴10
𝑑(log 𝑂𝑖𝑙 𝑃𝑟𝑖𝑐𝑒 𝑡 )
𝐴12 (𝐿)
𝐴20
𝐺𝐺𝐷𝑃𝑡
𝐼𝐹𝑡
= 𝐴30 + 𝐴13 (𝐿)
𝐴40
𝐼𝑅𝑡
𝐴14 (𝐿)
𝑑(𝑈𝑛𝑒𝑚𝑝𝑙𝑜𝑦𝑡)
𝐴50
𝐴15 (𝐿)
𝐴21 (𝐿)
𝐴22 (𝐿)
𝐴23 (𝐿)
𝐴24 (𝐿)
𝐴25 (𝐿)
𝐴31 (𝐿)
𝐴32 (𝐿)
𝐴33 (𝐿)
𝐴34 (𝐿)
𝐴35 (𝐿)
𝐴41 (𝐿)
𝐴42 (𝐿)
𝐴43 (𝐿)
𝐴44 (𝐿)
𝐴45 (𝐿)
𝐴51 (𝐿)
𝐴52 (𝐿)
𝐴53 (𝐿)
𝐴54 (𝐿)
𝐴55 (𝐿)
𝑒1𝑡
𝑑(log 𝑂𝑖𝑙 𝑃𝑟𝑖𝑐𝑒 )𝑡−𝑖
𝑒
𝐺𝐺𝐷𝑃𝑡−𝑖
2𝑡
𝐼𝐹𝑡−𝑖
+ 𝑒1𝑡
𝑒4𝑡
𝐼𝑅𝑡−𝑖
𝑒5𝑡
𝑑(𝑈𝑛𝑒𝑚𝑝𝑙𝑜𝑦)𝑡−𝑖
Tools :
1. Granger Causality (Causal relationship)
2. Impulse Response Function (Sign and time)
3. Variance decomposition (Relative importance)
1. Granger Causality
1998 - 2012
1984 - 1997
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The Basic Problems
Previous Works
Main Results
Basic Idea for Proof
Basic Ideas for Proofs/Implementations
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2. Impulse Response
Impulse responses trace out the response of current and future values of
each of the variables to a one-unit increase current value of one of the
VAR errors.
1st Period 1984 - 1997
The Basic Problems
Previous Works
2nd Period 1998 - 2012
Main Results
Basic Idea for Proof
Basic Ideas for Proofs/Implementations
3. Variance Decomposition
separates the variation in an endogenous variable
into the component shocks to the model, and provides information about the relative
importance of each random innovation in affecting the variables in the VAR model
Variance Decomposition 1984 -1997
Variance Decomposition 1998 -2012
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The Basic Problems
Previous Works
Main Results
Basic Idea for Proof
Basic Ideas for Proofs/Implementations
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Counterfactual (Measure oil import dependency)
1. Construct new measure of Oil Shock
•
𝑂𝑖𝑙 𝑃𝑟𝑖𝑐𝑒 𝑡= net oil import share * oil price t
•
Net import share = (
•
Oil Price t = MAX[0,(Oil Price)-(MAX(Oil Pricet-1, Oil Price-t-2,…, Oil price t-4)
𝐶𝑜𝑛𝑠𝑢𝑚𝑝𝑡𝑖𝑜𝑛 −𝑝𝑟𝑜𝑑𝑢𝑐𝑡𝑖𝑜𝑛
𝑐𝑜𝑛𝑠𝑢𝑚𝑝𝑡𝑖𝑜𝑛+𝑝𝑟𝑜𝑑𝑢𝑐𝑡𝑖𝑜𝑛
2. Change the data (a.Oil Price
Growth t = α + γ1Growth
β1Oil Price
1984
1997
1998
2012
t-1
t-1
t-1
+ γ2 Growth
+ β2 Oil Price
t-2
t-2
) , ∈[-1,1]
b. βi)
+ γ3Growth
t-3
+ β3 Oil Price
+ γ4 Growth
t-3
t-4
+ β4 Oil Price
+
t-4
+ε
Basis Period 1
using a. Oil Price in period 2
using β in period 2
Growth
0.6842
0.7411 (108.31%)
0.5286 (77.25%)
Standard Deviation
0.0318
0.0303 (95.18 %)
0.0297 (93.44)
Basis Period 2
using Oil Price in period 1
using β in period 1
Growth
0.2296
0.1711 (74.53%)
0.3021 (131.55%)
Standard Deviation
0.0227
0.0143 (63.11%)
0.0253 (111.39%)
The Basic Problems
Previous Works
Main Results
Basic Idea for Proof
Key References
 Basri MC, Hill H (2004) Ideas, Interest and Oil Prices- The Political
Economy of Trade Reform During Soeharto’s Indonesia. World
Econ Volume 27, Issue 5, pages 633–655.
 Mehrara M, Oskoui KN (2007) The sources of macroeconomic
fluctuations in oil exporting countries: A comparative study. Econ
Model 24:365–379. doi: 10.1016/j.econmod.2006.08.005
 Rafiq S, Salim R, Bloch H (2009) Impact of crude oil price
volatility on economic activities: An empirical investigation in the
Thai economy. Resour Policy 34:121–132. doi:
10.1016/j.resourpol.2008.09.001
 Rosser A (2007) Escaping the resource curse: The case of
Indonesia. J Contemp Asia 37:38–58. doi:
10.1080/00472330601104557
 Sims CA (1980) Macroeconomics and Reality. Econom Soc 48:1–
48.
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Thank you for your kind attention.
Any question, comment and suggestion are welcome
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