Macroeconomic Shocks and Market Persistence: A VECM Approach to the Indonesian Financial Sector

Thomas Sumarsan Goh; Erika Erika; Henry Henry; Albert Albert

doi:10.15408/etk.v25i1.50478

Authors

Thomas Sumarsan Goh Universitas Methodist Indonesia https://orcid.org/0000-0002-3389-8107
Erika Erika STIE Professional Management College Indonesia
Henry Henry Universitas Sumatera Utara
Albert Albert Universitas Gadjah Mada

DOI:

https://doi.org/10.15408/etk.v25i1.50478

Keywords:

Indonesian financial sector, inflation, exchange rate, economic growth

Abstract

Research Originality: This study offers fresh insights by analyzing how inflation, exchange rates, and economic growth affect Indonesia’s IDX Finance sector, addressing a key gap in understanding the market's internal dynamics.

Research Objectives: This study quantifies the impact of inflation, exchange rates, and economic growth on the Indonesian IDX Finance sector.

Research Method: This study uses 62 monthly observations and a VECM to analyze short- and long-run relationships among variables.

Empirical Results: Long-run VECM estimates reveal that the Consumer Price Index (CPI) and Exchange Rate (ER) exert significant positive pressures on IDXFINANCE, suggesting that moderate inflationary environments often catalyze credit expansion and heightened demand for financial intermediation. Conversely, Economic Growth (EG) exhibits a statistically negligible long-term impact.

Implications: The findings indicate that IDX Finance is largely driven by its own past dynamics rather than by external macroeconomic shocks. As a result, internal market trends provide more reliable short-term predictions than traditional economic indicators, especially when the sector’s persistence is taken into account.

JEL Classification: C5, E31, F31

Downloads

Download data is not yet available.

References

Ahmadzai, S. A., Ebrahimi, M. S., Arshad, N., & Amani, N. (2024). Impact of Exchange Rates on Returns in the Share Market: A Case of Pakistan. Journal for Research in Applied Sciences and Biotechnology, 2(6), 156–164. https://doi.org/10.55544/jrasb.2.6.23.

Aladwani, J. (2025). Influence of Oil Price Fluctuations on Inflation Uncertainty. Journal of Chinese Economic and Foreign Trade Studies, 18(1), 44–85. https://doi.org/10.1108/JCEFTS-06-2024-0045.

Anas, T., Hill, H., Narjoko, D., & Putra, C. T. (2022). The Indonesian Economy in Turbulent Times. Bulletin of Indonesian Economic Studies, 58(3), 241–271. https://doi.org/10.1080/00074918.2022.2133344.

Bachtiar, N. K., Setiawan, A., Prastyan, G. A., & Kijkasiwat, P. (2023). Business Resilience and Growth Strategy Transformation Post Crisis. Journal of Innovation and Entrepreneurship, 12(1), 1–25. https://doi.org/10.1186/s13731-023-00345-5.

Baek, C., Baek, S., & Glambosky, M. (2024). Macroeconomic Impact and Stock Returns’ Vulnerability by Size, Solvency, and Financial Distress. Finance Research Letters, 59, 104718. https://doi.org/10.1016/j.frl.2023.104718.

Boachie, R., Aawaar, G., & Domeher, D. (2023). Relationship Between Financial Inclusion, Banking Stability and Economic Growth: A Dynamic Panel Approach. Journal of Economic and Administrative Sciences, 39(3), 655–670. https://doi.org/10.1108/JEAS-05-2021-0084.

Goh, T. S., Henry, H., & Albert, A. (2025). Modelling and Forecasting Shari’ah-Compliant Stocks. International Journal of Islamic Finance and Sustainable Development, 17(3), 47 – 61. https://doi.org/10.55188/ijifsd.v17i3.1112.

Goh, T. S., Henry, H., & Erika, E. (2024). Factors Impact of the Stock Market Performance During the Covid-19 Crisis. Etikonomi, 23(1), 47 – 62. https://doi.org/10.15408/etk.v23i1.32005.

Habib, A., Khan, M. F., Mia, M. N., & Sakib, R. H. (2025). Corporate Governance and Forward-Looking Disclosures in Integrated Reporting: Evidence from The Banking Sector of Bangladesh. Journal of Financial Reporting and Accounting, In-press. https://doi.org/10.1108/JFRA-03-2024-0165

Hosen, M. Z. (2024). Effect of Ramadan on Purchasing Behavior: a Panel Data Analysis. International Review of Economics, 71(2), 325–341. https://doi.org/10.1007/s12232-024-00445-y

Hudaya, A., & Firmansyah, F. (2023). Financial Stability in the Indonesian Monetary Policy Analysis. Cogent Economics & Finance, 11(1), 2174637. https://doi.org/10.1080/23322039.2023.2174637

Imanuella, S. F., Idris, A., & Kamaruddin, N. (2025). Social Entrepreneurship and Rural Development in Post-Independence Indonesia. Social Enterprise Journal, 21(1), 46–66. https://doi.org/10.1108/SEJ-12-2023-0155.

Irani, F., Al. Al. Hadood, A., Gökmenoğlu, K. K., & Athari, S. A. (2025). Impact of Financial Market Uncertainty and Financial Crises on Dynamic Stock—Foreign Exchange Market Correlations: A New Perspective. Sage Open, 15(1), 1–21. https://doi.org/10.1177/21582440251314719.

Isma, N. N., Sutrisno T, & Rahman, A. F. (2023). The Impact of Inflation on Firm Value Moderated by Earnings Quality in Indonesia. International Journal of Research in Business and Social Science, 12(5), 217–222. https://doi.org/10.20525/ijrbs.v12i5.2751.

Kohler, K., & Stockhammer, E. (2022). Growing Differently? Financial Cycles, Austerity, and Competitiveness in Growth Models Since The Global Financial Crisis. Review of International Political Economy, 29(4), 1314–1341. https://doi.org/10.1080/09692290.2021.1899035.

Kumar, A., Jeswani, S., Farooq, R., & Rasheed, M. H. (2024). Evaluating the Impact of Financial Stability and Monetary Stability on Economic Growth: Evidence from an Emerging Economy. Pakistan Journal of Humanities and Social Sciences, 12(1), 87–97. https://doi.org/10.52131/pjhss.2024.v12i1.1952.

Makin, A. J. (2019). Lessons for Macroeconomic Policy from the Global Financial Crisis. Economic Analysis and Policy, 64, 13–25. https://doi.org/10.1016/j.eap.2019.07.008.

Mouna, A., & Anis, J. (2016). Market, Interest Rate, and Exchange Rate Risk Effects on Financial Stock Returns During The Financial Crisis: AGARCH-M Approach. Cogent Economics & Finance, 4(1), 1125332. https://doi.org/10.1080/23322039.2015.1125332.

Nalliboyina, S. B., & Chalam, G. V. (2023). Factors Determining the Financial Performance of Public Sector Banks in India. Asian Journal of Economics, Business and Accounting, 23(14), 57–71. https://doi.org/10.9734/ajeba/2023/v23i141005.

Nasreen, S., Mahalik, M. K., Shahbaz, M., & Abbas, Q. (2020). How Do Financial Globalization, Institutions, and Economic Growth Impact Financial Sector Development in European Countries? Research in International Business and Finance, 54, 101247. https://doi.org/10.1016/j.ribaf.2020.101247.

Nowzohour, L., & Stracca, L. (2020). More Than a Feeling: Confidence, Uncertainty, and Macroeconomic Fluctuations. Journal of Economic Surveys, 34(4), 691–726. https://doi.org/10.1111/joes.12354.

Ohakwe, C. R., & Wu, J. (2025). The Impact of Macroeconomic Indicators on Logistics Performance: A Comparative Analysis Using Simulated Scenarios. Sustainable Futures, 9, 100567. https://doi.org/10.1016/j.sftr.2025.100567.

Okeke, S. O., Nwoha, C. E., & Duru, A. N. (2024). Effect of Crude Oil Price Shock on Inflation and Exchange Rate in Nigeria. European Journal of Business and Innovation Research, 12(2), 56–66. https://doi.org/10.37745/ejbir.2013

Olamide, E., Ogujiuba, K., & Maredza, A. (2022). Exchange Rate Volatility, Inflation, and Economic Growth in Developing Countries: Panel Data Approach for SADC. Economies, 10(3), 67. https://doi.org/10.3390/economies10030067.

Rasbin, M., Ikhsan, M., Y. Gitaharies, B., & Affandi, Y. (2021). Real Exchange Rate Undervaluation and Indonesia’s Manufacturing Exports. Cogent Economics & Finance, 9(1), 1930880. https://doi.org/10.1080/23322039.2021.1930880

Saeed, U. F., & Klugah, G. E. (2025). Driving Inclusive Growth Through Financial Systems and Technology Adoption: A Global Analysis of Synergistic Pathways Using Structural Equation Modeling. Cogent Economics & Finance, 13(1), 2523955. https://doi.org/10.1080/23322039.2025.2523955.

Serbina, N., Daineko, V., Tsyrfa, I., Rozhkova, M., & Lytvynenko, N. (2024). Analysis of the Influence of Political Factors on Economic Growth: The Interrelationship of Managerial Spheres in the Global Context. International Journal of Religion, 5(5), 223–232. https://doi.org/10.61707/f45ryd78.

Šimakova, J. (2017). The Impact of Exchange Rate Movements on Firm Value in Visegrad Countries. Acta Universitatis Agriculturae et Silviculturae Mendelianae Brunensis, 65(6), 2105–2111. https://doi.org/10.11118/actaun201765062105.

Truong, T. H. D. (2025). Environmental, Social, and Governance Performance and Firm Value: Does Ownership Concentration Matter?. Management Decision, 63(2), 488–511.

Verma, R. K., & Bansal, R. (2021). Impact of Macroeconomic Variables on the Performance of Stock Exchange: a Systematic Review. International Journal of Emerging Markets, 16(7), 1291–1329. https://doi.org/10.1108/IJOEM-11-2019-0993.

Yildirim, Z., & Ivrendi, M. (2016). Exchange Rate Fluctuations and Macroeconomic Performance: Evidence from Four Fast-Growing Emerging Economies. Journal of Economic Studies, 43(5), 678–698. https://doi.org/10.1108/JES-01-2015-0010.