Econometric analysis of the effect of Krismon shocks on Indonesia's industrial subsectors

This article analyzed the different trends of production indices of eight m anufacturing subsectors during the economic crisis period (July 1997-Decemb er 1998). All the indices declined until May 1998, but their recovery patte rns markedly differed. The index of the agriculture-related subgroup (food and beverage, fertilizer: petroleum refinery) recovered quickly and reached a historically highest level in December 1998, while those of the other gr oups continuously declined. Therefore, the production index of the agricult ure-related group was 82% higher than the pre-crisis level, while that of t he light-industry group (textile, furniture, miscellaneous) was 10% lower a nd that of the heavy-industry group (cement, iron and steer, machinery) bec ame less than half. The paper estimated equations for subsectors, conducted simulation experiments, and determined how different causes (noneconomic i mpact, rapid depreciation and shrinkage of imports, general economic tl-end , strong export activity, and others) affected the trends of subsectoral pr oduction and employment.