The Distributional Impacts of Indonesia's Financial Crisis on Household Welfare: A "Rapid Response" Methodology

Analyzing the distributional impacts of economic crises is anever more pressing need. If policymakers are to intervene tohelp those most adversely affected, they need to identify thosewho have been hurt most and estimate the magnitude of the harmthey have suffered. They must also respond in a timely manner.This article develops a simple methodology for measuring theseeffects and applies it to analyze the impact of the Indonesianeconomic crisis on household welfare. Using only pre-crisishousehold information, it estimates the compensating variationfor Indonesian households following the 1997 Asian currencycrisis and then explores the results with flexible nonparametricmethods. It finds that virtually every household was severelyaffected, although the urban poor fared the worst. The abilityof poor rural households to produce food mitigated the worstconsequences of the high inflation. The distributional consequencesare the same whether or not households are permitted to substitutetoward relatively cheaper goods. The geographic location ofthe household matters even within urban or rural areas and householdincome categories. Households with young children may have suffereddisproportionately large adverse effects.