Do pandemic COVID 19 and business cycle influence the Indonesia composite index?

Development Economics Department, Universitas Syiah Kuala, Aceh, 23111, Indonesia

^* Corresponding author: chenny@unsyiah.ac.id

Abstract

The impact of the Covid 19 pandemic on the Indonesian economy was worse than the impact of the global financial crisis in 2008. We can see the business cycle from the contraction of economic growth, volatility of the exchange rate, and inflation. The shocks to these business cycles could create systemic risks and influence financial system stability. Financial system stability is more sensitive to shocks from changes in one of the macroprudential indicators, namely the Indonesia Composite Index (ICI). This study will examine the effect of the Covid 19 pandemic and the business cycle on ICI. This research was conducted in Indonesia using quarterly secondary data from 2008-2021. The data was obtained from Bank Indonesia. The model used is the Auto Regressive Distributed Lag (ARDL) model. The purpose of using this model is to see the long-term and short-term relationships between the variables studied. The results show that the Covid 19 pandemic and business cycle variables such as; economic growth, exchange rate, and inflation have a relationship on the ICI both in the short and long term. The decline in economic growth during a crisis is difficult to avoid. However, the government must continue to accelerate the economic growth so it does not decline sharply during the crisis. Monetary authorities must also maintain exchange rate stability and inflation so it does not fluctuate unsteadily.