SURVEY OF RECENT DEVELOPMENTS

Managing the Indonesian economy in 2015 has proved challenging for the administration of Joko Widodo (Jokowi). In a first quarter plagued by external adversity—especially a sharp drop in exports to China—coupled with internal political paralysis and the delayed disbursement of fiscal spending, the economy recorded its lowest rate of growth since 2009. Observing relatively stable inflation, Bank Indonesia (BI), the central bank, eased its policy rate in February by 25 basis points, to 7.5%. The bank also adjusted its macroprudential measures to counter declining bank lending. On the fiscal side, the expected stimulus from fuel-subsidy reallocation and aggressive public-capital spending did not arrive. Meanwhile, tax revenue made slow progress towards its ambitious target, which it seems unlikely to attain.

Increases in supply costs made it difficult for the government to align domestic fuel prices more closely to the market. Major commodity exports fell significantly, but some manufactured exports showed hints of an upturn. The depreciation of the rupiah, the global strategies of leading investors, and the introduction of taxexemption policies that have been tested in neighbouring countries may have contributed to this trend. To further broaden the base of export diversification, the priorities should be to reduce business costs and enhance competition rather than enforce mandatory regulations. Jokowi has stressed that his focus on maritime development, part of a broader development strategy, includes reducing logistics costs.

The second quarter of 2015 saw the start of several projects in Jokowi's flagship ‘sea toll’ program to improve maritime connectivity. There is a concern, however, that the predominance of state-owned enterprises (SOEs) in strategic port operations will continue to limit competition and reduce efficiency. Jokowi's development strategy also focuses on reducing inequality. His government has implemented several distribution and redistribution policies, including the national social-security system initiated by the previous administration. The system suffered financially in its first year from low participation among those in the informal sector.     

Evaluating effects on the flow of electrical and electronic equipment and energy consumption due to alternative consumption patterns in China

In this paper, we evaluated the effects of consumer’s behavioural changes on usage and disposal of home appliances. With the model to estimate the product circulation, first we conducted the sensitivity analysis with the six parameters, namely urbanisation, household size, Gini coefficient, product lifetime and selection rate of used product and high energy efficiency product. Then, secondly we evaluated CO₂ emission and e-waste generation from four consumers’ different behavioural patterns, which are named as ‘Business As Usual’ (BAU), ‘Rapid Cycling’ (RC), ‘Chain of Users’ (CU) and ‘Quality and Wisdom’ (QW). As a result, the QW scenario was the best lifestyle in both criteria. Further, RC scenario had an advantage on the reduction in e-waste generation in one hand, but CU scenario reduced more CO₂ emission. During the transition era of China from materially poor to rich, it could be one of the solutions to utilise energy-efficient second-hand product to improve the living standards of the poor and replace technologically inferior product stocks in poor households.     

Conjoint analysis of demand for IP telephony: the case of Japan

With the recent diffusion of broadband (BB) services, Internet protocol (IP) telephony is expected to spread significantly in Japan. This article investigates the demand for IP telephony by using conjoint analysis. Projecting IP telephony demand also contributes to Japanese info-communication policy discussions. Two points are made. First, IP telephony is still currently considered an optional supplement or an add-on service option of high-speed BB Internet access services in Japan rather than a close substitute of existing plain old telephone service (POTS). At this point, we find little evidence that many households will promptly forsake their fixed line service for IP telephony. Second, we conclude that the key condition for the proliferation of IP telephony is the complete guarantee of quality of service (QoS), including voice quality, number portability, fax usage and emergency access, comparable to or exceeding that of existing POTS.     

Public debt accumulation and fiscal consolidation

In this study, we analyse the relationship between interest rates on government bonds (GB) and the fiscal consolidation rule by using an overlapping generation model with endogenous and stochastic growth settings. Our key findings are summarized as follows. First, contrary to conventional view, we find that interest rates on GB may decline as public debt accumulates relative to private capital. Second, the simulation reveals that the economy may exhibit discrete changes with divergent interest rates, implying that the observed trend of relatively low interest rates on GB with public debt accumulation may not continue indefinitely in the future. Third, fiscal consolidation rule plays a key role in determining equilibrium interest rates.     

Real Output Co‐movements in East Asia: Any Evidence for a Monetary Union?

The East Asian region has experienced astonishing economic growth and integration over the past few decades. It is generally believed that a high degree of integration in the region would greatly shape the economic structure of each individual economy and has direct implications for the effectiveness of domestic stabilisation policy and policy coordination. This paper empirically examines the feasibility of forming a monetary union in East Asia by assessing the real output co‐movements among these economies. As suggested by the optimum currency area (OCA) theory that losing monetary independence would be the major cost for adopting a common currency, it would be less costly for the economies to form a monetary union if the business cycles are synchronised across countries. The cointegration test and the Vahid and Engle (1993 ) test for common business cycles are conducted to examine their long‐run relationship and short‐run interactions in real outputs, respectively. Our study found that some pair countries in the region share both the long‐run and short‐run synchronous movements of the real outputs. In particular, the short‐run common business cycles are found in some pairs of ASEAN economies consisting of Singapore, Thailand and Indonesia, and in the Northeast Asian region consisting of Hong Kong, Korea and Mainland China, as well as between Japan and Taiwan. These findings have important implications for the economies in terms of adjustment costs when considering the adoption of a monetary union.     

Equilibrium Price Dispersion in a Matching Model with Divisible Money*

The main purpose of this article is to show that, for any given parameter value, an equilibrium with dispersed prices (two‐price equilibrium) exists in Green and Zhou's matching model with divisible money. The welfare effect of price dispersion is also analyzed.     

Linkage Formation by Small Firms: The Case of A Rural Cluster in Indonesia

This paper analyses forward linkages formed by small firms in Ceper, a rural metal-casting cluster in Central Java, and examines the effects of these linkages in promoting the firms' development. Firms in the cluster have developed subcontracting linkages with assemblers in the urban modern sector, and putting-out linkages with wholesalers located in the cities. The linkages provide benefits beyond product sales: some firms are stimulated to improve technological capabilities through subcontracting linkages with assemblers; others are supported by trade credits embedded in linkages with wholesalers. In comparing these effects with external assistance, the firms rate technological help from private institutions with a business orientation more highly than that from assemblers, and support from wholesalers more highly than any other source of financial assistance. Government assistance receives a relatively low rating. There is little evidence of effects of clustering, partly because firms consider linkages with the outer economy more strategic.