Measuring Economy-wide Impacts of a Financial Shock

This article analyses the transmission of financial shock to household income distribution using the case ofIndonesia. Presumably, those benefiting from currency depreciation and high interest rate during the crisis are the high-income groups. However, the same groups might lose since they were employed in sectors that are highly import-dependent. On the production side, construction was the hardest-hit sector during the crisis, and thus the low-income non-agricultural households were more susceptible due to their heavy reliance on manual work in construction. This sector also proves to be instrumental in transmitting the shock from the credit crunch to the fall in household income. To the extent that a formal social safety net is lacking, an informal system of inter-household network is expected to mitigate the impact on the poor. However, we found that there is no convincing evidence that households acted altruistically to assist their distressed neighbours during the crisis. I