This study examines the elasticities, absorption, monetary,
capital market and the structural approaches to the balance of
payments in the context of Indonesia's international
transactions for 1960-1988. The main findings are :
The necessary condition of the Marshall-Lerner is not
satisfied in the SR , it is fulfilled in the LR but only just !
However, the sufficient condition shows that in the SR, the
trade balance ameliorates but deteriorates in the LR, a reverse
The "pass-through" equation reveals that exchange rate,
import price, money supply and lagged domestic price are
significant in explaining domestic price responses. The
significance of the pass through coefficient reveals that it is
difficult to sustain price levels due to devaluation; inflationary
effects counteract the price advantages following devaluations.
The absorption model shows that the magnitude of the
coefficient of MPA is relatively high indicating that the
economy has been absorbing more than it produces.
The reserve model reveals that the assumption of
homogeneity in prices cannot be rejected; the restricted
specifications are superior to the unrestricted ones. The major
prediction of the monetary theory that the offset coefficient
should be negative appears to be verified in most cases…
A Doctoral Thesis. Submitted in partial fulfilment of the requirements for the award of Doctor of Philosophy of Loughborough University.