Indonesian Financial Crisis Prediction Using Combined Volatility and Markov Regime Switching Model Based on Indicators of Real Interest Rate on Deposits and Lending Interest Rate/Deposit Interest Rate

The financial crisis that occurred in mid-1997 made it aware of the importance of building an early detection system because the crisis had a severe impact on the Indonesian economy. The crisis occurred due to several macroeconomic indicators experiencing very high fluctuations and the existence of...

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Bibliographic Details
Published in:Journal of physics. Conference series 2019-11, Vol.1373 (1), p.12045
Main Authors: Sugiyanto, Hidayah, Aisyah Zahrotul
Format: Article
Language:English
Subjects:
Autoregressive models
Deposits
Economic crisis
Impact analysis
Indicators
Interest rates
Interest rates-deposits
Physics
Switching
Volatility
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Summary:The financial crisis that occurred in mid-1997 made it aware of the importance of building an early detection system because the crisis had a severe impact on the Indonesian economy. The crisis occurred due to several macroeconomic indicators experiencing very high fluctuations and the existence of changes in the structure (regime). The combined volatility and Markov regime switching models are very suitable to explain the crisis. Indicators of real interest rates on deposits and lending interest rate/deposit interest rates from 1990 to 2018 were used to build the combined model. The result showed that the MRS-ARCH (2,1) model for real interest rate on deposits indicator and the MRS-GARCH (3,1,1) model for lending interest rate/deposit interest rate indicator could explain the crisis. Markov regime switching predictions indicate that in 2019 there are no signs of a financial crisis in Indonesia.
ISSN:1742-6588
1742-6596
DOI:10.1088/1742-6596/1373/1/012045