THE ROLE OF PALM OIL PRICE IN INDONESIA’S AGGREGATE DEMAND

This study examines the predictability of Indonesia’s aggregate demand using palm oil price. We conduct both in-sample and out-of-sample forecasting evaluations. These evaluations are based on time-series quarterly and monthly data frequencies and cover three different forecasting horizons. Overall, we find that palm oil price predicts real GDP, consumption expenditure, total investment, net spending from overseas, while predictability of government spending is sensitive to the use of forecasting approaches and horizons.This study examines the predictability of Indonesia’s aggregate demand using palm oil price. We conduct both in-sample and out-of-sample forecasting evaluations. These evaluations are based on time-series quarterly and monthly data frequencies and cover three different forecasting horizons. Overall, we find that palm oil price predicts real GDP, consumption expenditure, total investment, net spending from overseas, while predictability of government spending is sensitive to the use of forecasting approaches and horizons