The Impact of Oil Price to Indonesian Macroeconomics Indicators : Pre and Post Asian Crisis

This study is aimed to investigate the impact of oil price in several measures (Linear, Volatility and Non Linear) to Indonesian macroeconomic variables, pre and post the Asian financial crisis and examine the role of fuel subsidy to cushion the harmful effects. Vector Autoregression (VAR) model was employed to analyzed the impact and it shown that the impact in macroeconomics variables in post crisis was worse than pre crisis. Moreover, the result also revealed that fuel subsidy could be one of factors mitigating the harmful effects in pre-crisis. However, the role seems did not exist in post-crisis even the government provided nine-folds fuel subsidy than pre-crisis. The policy implication of this research is that the government should reform fuel subsidy policy to be a sustainable policy which considering economy, social and also environmental effect.The authors thank to Ministry of Energy and Mineral Resources Republic of Indonesia by providing doctoral scholarship and The Setsutaro Kobayashi Memorial Fund (Fuji Xerox) which afford research fund for this study