Coronavirus (COVID-19) and Indonesia: Modelling the External Financial Shock

Economic impacts of the coronavirus in Indonesia can be represented by three main shocks. A demand shock is caused by quarantine measures forcing large portions of the population to remain at home (Basri 2020). Increased uncertainty and unemployment from halting economic activity have decreased household spending. Similarly, business closures and containment have disrupted supply chains. The resulting supply shock is perhaps most dangerous as it may lead to supply shortages, but it is difficult to map these potential production choke points (Gertz 2020). Finally, a country risk premium shock occurs as investors lose confidence and require higher returns to maintain holdings in the domestic economy, leading to large-scale capital outflows from emerging markets.

3 Talia Melsom This paper models the third of these shocks by utilising the G-Cubed (G20) model (version 15