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    Expenditure patterns of Indonesian households before and after the 1997 economic crisis : a thesis submitted in partial fulfilment of the requirements for the degree of Master of Philosophy in Agribusiness at Massey University, Palmerston North, New Zealand
    (Massey University, 2006) Utami, Yulistiana Endah
    Indonesia is a developing country located in the Southeast Asian region and the fourth largest country in the world. Indonesia had a positive economic development, notably since the mid-1960s and this continued until the economic crisis in 1997. Development in the economic sector brings development in the social sector. Household expenditure is one of the social indicators used in a range of studies, particularly in the developing countries, as a common measure to assess living standards and poverty. Theories of consumption illustrate that when the economy surges, expenditure and income rise; and when the economy retrenches, expenditure and income fall. Therefore, changes in Indonesian economic development would be reflected in changes in the expenditure of Indonesian households. Furthermore, patterns of household expenditure can be used to symbolise the level of economic welfare of households, particularly in their buying capacity to meet their needs for living. In mid-1997, an economic crisis hit Indonesia and this negatively affected the country. Some of the major economic and social indicators showed that the rupiah (the Indonesian currency) fluctuated, the consumer price index climbed, poverty increased, unemployment rose and the price of rice (Indonesia's staple food) increased. By 1999, nearly two years after the 1997 crisis, the Indonesian economy began to demonstrate some signs of recovery, which was indicated by strengthened macroeconomic indicators. From 1999 onwards, GDP grew positively, inflation (CPI) went down, the exchange rate strengthened and food prices went down. Given the fact that Indonesia experienced an economic crisis in 1997, the general aim of this study was to investigate the impact of the 1997 Indonesian economic crisis on the economic welfare of households in Indonesia, with regard to their expenditure. There were three years (1996, 1999 and 2002) observed to represent the period before the economic crisis in 1997 (before 1997), the period initial adjustment of post crisis (1998-2000) and the period further adjustment of post crisis (after 2001). Five objectives were set out for the study as follows: • To examine changes in the Indonesian economy before and after the economic crisis in 1997. • To review the socio-demographic characteristics of Indonesian households. • To investigate changes in expenditure patterns of Indonesian households, in order to measure their buying capacity before and after the economic crisis in 1997. • To investigate changes in household expenditure patterns on different foods and non-food items, before and after the 1997 economic crisis in Indonesia. • To develop a typology of Indonesian households based on their expenditures. The data employed for analysis was from the SUSENAS (the national socio-economic survey) at household level conducted by the Indonesian Central Agency for Statistics (CBS). Univariate, bivariate and multivariate analytical methods were performed for the data analysis. The results showed that the economic crisis in 1997 led to the decline of the purchasing power of households in Indonesia. In the further adjustment of the post crisis (in 2002), their buying capacity level had improved, however, it had not reached their higher level before the crisis (in 1996). Food is a necessity expenditure compared to non-food. Indonesian households consumed more than 50 percent of their total expenditure on food, relative to non-food, indicating that the majority of Indonesian households are relatively poor. Necessity items included cereals and vegetables for food and housing, goods-services, health and clothing-footwear for non-food. Luxury items included meats, fruits, prepared food-drink for food and education, durable goods, tax-insurance and social activity for non-food. There were six types of Indonesian households identified, based on similarities in their expenditure. They were labelled from the 'very poor' type (T1) to the 'very wealthy' type (T6). These six types of households demonstrated different stages of expenditure patterns, moving from basic through to high non-basic expenditure. The very poor type represented about 70 percent of households in Indonesia. In conclusion, the Indonesian economic crisis in 1997 had a negative impact on households in Indonesia with regard to their household expenditures.
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    Risk management and extreme scenario development using multiple regime switching approaches : a thesis presented in partial fulfilment of the requirements for the degree of Master of Business Studies in Finance at Massey University
    (Massey University, 2004) Pallem, Dinesh
    Over the last twenty-five years, there have been an increasingly large number of extreme events in the financial markets. This includes market crashes and natural disasters that have led to extremely large losses and claims. Extreme event risk affects all aspects of risk assessment modeling and management. Traditional risk measurement methods focus on probability of laws governing average of sums, and do not focus on the tails of distribution. The investigation concerns the characterization and development of extreme markets scenarios for use in risk measurement and capital adequacy determination frameworks. The first part of the investigation concerns the development of event timelines that can be used for characterizing whether a period of time should be considered normal or extreme market conditions or regimes. The time lines have allowed the identification of the different times when the markets were calm and when the markets were turbulent. They assist in building scenarios, and also to identify the scenarios for decomposition of data to model the different regions, either the tail or the center of the distribution using the mentioned regime switching models. The information from the event time line can be used to define scenarios in a stress testing context. In this investigation, extreme value analysis, which is an extension of the standard VaR techniques, useful in measuring extreme events has been used, which fits density functions by placing more weights in the tails than the normal Gaussian distribution and model the upper and lower tail of an underlying distribution. Extreme value distribution functions including "fat tailed" will be fitted to the tails of critical market factors to model the extreme market events that are not given appropriate probability of occurrence under normal conditions. The Hill estimator, which is recognized as the consistent estimator for empirical analysis is used for calculating the tail index parameter for EVT modeling, However, it has to be noted that the Hill estimator is efficient when the underlying distribution is fat-tailed as compared to the gaussian, where the tail index estimates tend to go to infinity. The performance of Extreme value theory estimation technique with multiple regimes on real and simulated financial time series for efficient results, compared to the standard VaR techniques has been studied. In this investigation, multiple regime switching approach has been used to identify regimes and measure risk accordingly. It is assumed that the center of the returns distribution is normally distributed with 90 percent of the data in the in the center region and each tail contains 5 percent of the data. Three regime switching models have been used in this analysis which includes, the Unconditional LT-C-RT (Left tail - Center - Right Tail) transfers, the 3 State Regime Markov Transition Model and the Geometric Time in Trail Model. The regime switching models are modeled using the following procedures: 1) The Unconditional LT-C-RT (Left Tail - Center - Right Tail) model is an IID model (Independent and Identically Distributed) model and has a simple Bernoulli approach where the market is in a normal state with probability P or an abnormal state with probability 1 - p . The transition between states is independent of the last state. 2) A Markov chain approach where the next state of the market is a function of the current state. That there are the following transitions possible: 2.1) Normal to normal 2.2) Normal to abnormal 2.3) Abnormal to abnormal 2.4) Abnormal to normal 3). The Geometric Time in Tail model is a hybrid Bernoulli approach where the markets stays in a given state based on a duration model and when the duration in a given states has expired, the sampling of the next state using a independent Bernoulli approach similar to approach one. This implies that the after the market has stayed in a given regime for the sample duration time, it can stay in the current regime with probability p or leave the regime with probability 1 - p. The sample duration can be based on the exponential distribution for continuous time and the geometric distribution for discrete time such as daily movements. Tail index estimation results using EVT indicate the presence of fat tails in equity data and the results of Value-at-Risk (VaR) and Expected Shortfall (ES) are considerably similar for the three regime switching models. The comparison of results from the multiple regime switching models to the one region distribution results, which serve as the base case prove the efficiency of using this approach for a better risk measure.
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    The linkage between banking sector, economic fundamentals and the Indonesian currency crisis : a thesis presented in partial fulfillment of the requirements for the degree of Master of Applied Economics at Massey University
    (Massey University, 2000) Nugroho, Agus Eko
    This study shows that a link exists between the weaknesses in the banking sector, economic fundamentals and the rapid depreciation of the rupiah exchange rate. The weakness in the banking sector was strongly associated with the number of insolvent banks and the rise in foreign liabilities of the banking sector in the pre-crisis period. The increase in the ratio of trade deficit to GDP and the rise in the domestic and foreign interest rate differential largely contributed to the deterioration in the Indonesian economic fundamentals during 1990-1998. Somewhat surprisingly, the interaction variable between the ratio of foreign reserves to imports and the foreign and domestic interest rate is statistically significant. This finding implies that the impact of the change in the ratio of foreign reserves to imports on the change in the rupiah exchange rate is moderated by the magnitude of the foreign and domestic interest rate differential. Similarly, the change in the rupiah exchange rate resulting from a change in the foreign and domestic interest rate differential is moderated by the value of the ratio of foreign reserves to imports. Finally, the dummy variable used to capture the effect of a change in the policy of exchange rate regime shows that the abandonment of the pegged exchange rate regime led to the rapid depreciation of the rupiah exchange rate.
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    Foreign exchange rate regimes and the Asian currency crisis : a thesis presented in partial fulfilment of the requirements for the degree of Master of Business Studies in Economics at Massey University
    (Massey University, 1999) Lan, Yuping
    This thesis is a study on the Asian currency crisis. It starts with a review of the theories on foreign exchange rate regimes and their adjustment mechanisms. The monetary approach of foreign exchange rate is discussed and used as a framework in analyzing on the origins and causes of the currency crisis, which started in East Asia in mid 1997. A lot of statistical data are used in the analysis on the crisis-hit countries in terms of prices, interest rates, external competitiveness, foreign exchange rates of major currencies and the flow of foreign capital and so on. It is found that the main origins and causes of the Asian currency crisis are from the deterioration of external competitiveness and the misuse of foreign capital and bad supervision of the domestic financial markets. The characteristics of a pegged exchange rate regime has proved to be too rigid to reflect the changes in the fundamentals of the economy and has been responsible for the accumulative inconsistencies leading to the collapse of the regime. The Asian currency crisis indicates that in the present world in which economic globalization has become a mainstream trend, it is getting more difficult to maintain a pegged exchange rate regime. The Asian currency crisis also reflects the importance of the establishment of a sound financial sector and good supervisory and governing abilities of the government when liberalizing its domestic financial market, especially on the opening of the domestic capital market. A rush of financial liberalization would likely generate vulnerabilities to the economic system.