Financial crisis model in Indonesia using combined of volatility and Markov-switching models based on international reserve ratio to M2 indicators

Abstract

The financial crisis has hit the Indonesian economy since 1970 precisely in 1978, 1983, 1986, 1997, and 2008. The most severe crisis in mid-1997, beginning with the fall of the exchange rate Bath Thailand. There for, a model of financial crisis is needed as a reference to solve or anticipate crises that occur in the future. The aim of this study is to form a model of the financial crisis in Indonesia based on indicators of international reserves ratio to M2 using two and three state of SWARCH models. Based on the international reserves ratio to M2 data of the period January 1980 to December 2010 obtained the appropriate model is SWARCH(2,1) and SWARCH(3,1). This model can capture signals of crisis that occurred in May to July 1983 and March to June 1998