Financial Public Turbulency After Covid-19 Pandemic Pressure (CPP 19 ) : Study Case in Indonesia

doi:10.21203/rs.3.rs-2821023/v1

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Financial Public Turbulency After Covid-19 Pandemic Pressure (CPP 19 ) : Study Case in Indonesia

https://doi.org/10.21203/rs.3.rs-2821023/v1

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The Covid-19 pandemic has mutated with various types, we need a model for detect financial turbulence, heavy economic pressures in the form of financial instability and slowing economic growth in Indonesia. The collecting financial data process was obtained during the Covid 19 Pandemic from Bank Indonesia reports 2019 to 2022. Data processing used the Ed Waves Index the development model, which describes the financial cycle wave movement as a reaction form to the Covid-19 pandemic pressures in Indonesia, The study results found that there are three concepts of financial turbulency, first, the Covid-19 Pandemic Pressure (CPP₁₉) which increases, the financial cycle moves negatively by -0.020 Amplitude. Second, the Covid-19 Pandemic Pressure (CPP₁₉) is neutral, the financial cycle moves negatively by -0.009 Amplitude. Third, the decreasing the Covid-19 pandemic pressure (CPP₁₉), the financial cycle moving positively by 0.022 Amplitude, all techniques have an impact on financial stability and economic growth in Indonesia.

JEL Classification: E32, E52, E58

Covid-19 Pandemic

Financial Cycle

Financial Stability

Economic Growth

Turbulency

The Covid-19 pandemic that continues to develop has a heavier character compared to several previous variants such as the Delta variant. Through different characters, they still have an influence on national and international financial activities (Aizenman & Glick, 2009).

The Covid-19 pandemic mutation movement has an impact on global finances felt by both developed and developing countries (Agenor et al, 2000; Male, 2011). The economic conditions of the two countries experienced uncertainty in macroeconomic and microeconomic activities, such as changes in bank deposits and loans level are not balanced (Chauvet, 1998).

Macroeconomic and microeconomic changes as an indication of uncertainty in economic activity (Clements & Krolzig, 2003). As a result, changes in the resilience of the banking financial system have resulted in increasingly volatile financial cycles, especially for developing countries such as Indonesia (Dang & Dang, 2020).

The outbreak of the Covid-19 pandemic has raised concerns for Indonesia's economic growth, referring to the decline in financial activity which has slowed since Covid 19 pandemic spread at the end of 2019 to 2022 (Hyera & Mutasa, 2016; Kydland & Prescott, 1990).

The Covid-19 pandemic journey has resulted in changes on people's social activities and has affected the financial cycle movement in Indonesia (Basmar, Carl M.P.III. & Erlin B., 2021; Medhioub & Eleuch, 2013). The sector most impacted was the business sector which underwent significant changes, resulting in disruption of the banking sector performance through the intermediary function (Claessens, Kose & Terrones, 2012).

Indirectly, the intermediary function determines the severity of the financial cycle wave pressure, through measuring economic growth based on the financial cycle wave (Leland & Pyle, 1977). This measurement can be influenced by an increase in lending (Basmar & Erlin, 2021). However, this relationship caused controversy, because during the Covid-19 pandemic, banks continued to increase the lending volume (Bernanke & Gertler, 1995). However, the financial cycle wave does not move towards a peak or economic growth, but a wave towards a depression that results in financial stability disruption and a decline in the financial system (Kamil & Lorenzo, 2005).

Therefore, the study describes the intermediary function of the banking sector in responding to the Covid-19 pandemic pressures through financial activities such as macroeconomic and microeconomic pressures in the financial cycle wave, which signifies changes in financial stability and economic growth as the final target for Indonesia as a developing country.

This study reveals how much influence the Covid-19 pandemic pressure has on financial activity through the financial cycle waves movement. In order to measure changes in indicators, time series data was collected from Bank Indonesia's financial statements since the Covid-19 Pandemic (2019) to the current Covid-19 Pandemic (2022). Changes in pressure are measured using the Ed Waves Index development model to determine changes in the financial cycle waves and the pressure amount on financial cycle activities ( Figure 1).

In Figure 1 Changes in the financial cycle waves and pressures will be described in a quantitative descriptive manner to clearly identify the problem root and its implications, as an illustration in setting policies in the financial sector and providing maximum benefits from the research results.

The measurement process is through the initial identification of changes in financial activity transactions on changes in pressure from the banking sector, especially on the intermediary function. The basic concept in this research is illustrated in the following equation:

α = δ + λ + ℓ (1)

Equation 1 shows the intermediary banking concept through the collecting public funds process (α), through savings transactions (δ), demand deposits (λ) and deposits (ℓ) for measuring the pressure wave in the financial cycle.

Another intermediary function is lending activity (β), through the working capital credit amount (ρ), investment credit (φ) and consumption credit (σ). This credit function drives the business sector which is part of the financial cycle wave measurement, this relationship is described by the following equation:

β = ρ + φ + σ (2)

Equations 1 and 2 describe the financial cycle wave movement balance, to determine the severity of pressure through banking sector activities as an intermediary function. This balance can be seen through Equation 3 below:

α = β (3)

Equation 3 describes financial stability in line with economic growth, assuming financial activity moves without external and internal pressures. Assumption of normal pressured financial activity through the financial elements movement in the banking sector. The intermediary concept can be described through equation 4 below:

δ + λ + ℓ = ρ + φ + σ (4)

Equation 4 shows the complexity of real financial activities in financial markets. With financial filtering, the imbalance level that affects the financial cycle waves can be known. Pressure can be measured maximally through the relationship between financial stability and economic growth. the measurement model for the financial elements number is described in Equation 5 below:

Ʃ (δ + λ + ℓ) = Σ (ρ + φ + σ) (5)

Equation 5 explains that the banking sector financial volume is measured based on the severity of the accumulated pressure of the financial cycle wave movement, the importance of filtering the financial element volume measurement is a measure of significance in the financial cycle wave pressure, this pressure concept contains the assumption that pressure will move based on the financial cycle wave volume size that is balanced between economic growth and financial stability. This influence can be described in Equation 6 below:

Ʃ (δ + λ + ℓ)_1>0>-1 = Σ (ρ + φ + σ)_1>0>-1(6)

Equation 6 shows the financial cycle normal limits in financial activities. This equation determines the financial elements volume with controlled pressure through banking activities. The financial cycle wave actualization is seen as stable to create economic growth based on the banks ability to explore their intermediary functions. These conditions can be illustrated in Equation 7 below:

Ʃ ((δ + λ + ℓ)/3)_1>0>-1 = Σ ((ρ + φ + σ)/3)_1>0>-1(7)

Equation 7 in detail shows the financial cycle wave core based on the relationship of the financial cycle movement, the equation based development measurement on the financial activity pressure in banking transactions, as a growth driver in achieving financial stability. This condition indicates that there is no financial system turmoil and the financial cycle wave normal movement, the simplification in the financial cycle wave transformation is explained by this equation:

Ʃ (α + β)_1>0>-1(8)

Equation 8 simply describes the financial interaction through the formation of the financial cycle wave end, the formation process is more perfect in determining the changes pressure in financial activity in a certain period. The equation for measuring external and internal pressures can be included in the pressure wave measurement of the financial cycle, as a stimulus factor for changes in the financial cycle wave.

Through equations 1 – 8 illustrates how the forming a wave process of the financial cycle is effective, by measuring the pressure on the banking intermediary function, as a financial activity symbol that creates pressure on the financial cycle movement.

The connection of this research is to find out changes in the normal financial cycles wave and experiencing pressure due to changes in financial activity through the Covid-19 Pandemic identification, which has an impact on the shift in the financial cycle wave due to new pressures, this measurement is explained in the following equation:

Ω = (γ + υ) (9)

Equation 9 describes the Covid-19 Pandemic (Ω) become a financial cycle measure which has a stronger flow of pressure against changes in the financial cycle waves. When external pressures (γ) then affect internal pressures (υ) the financial cycle waves become increasingly aggressive in responding to changes in financial activity in certain periods.

The movement effect can be substituted into a normal financial cycle wave, which illustrates how much the Covid-19 Pandemic Pressure (CPP₁₉) affects the financial cycle wave on economic activity, the equation form can be described as follows:

(Ʃ δ_1>0>-1 + Ʃ λ_1>0>-1 + Ʃ ℓ_1>0>-1)+ (Ʃ γ + Ʃ υ) = (Σ ρ_1>0>-1 + Σ φ_1>0>-1 + Σ σ_1>0>-1) + (Ʃ γ + Ʃ υ) (10)

Equation 10 describes the financial cycle wave rate contaminated with the Covid-19 Pandemic Pressure (CPP₁₉) with changes in a new wave movement. The pressure pattern moves through a new rate of pressure with a strong impulse from the financial cycle wave based on the positive or negative magnitude factor of the Covid-19 Pandemic Pressure (CPP₁₉).

Measurement by concentrating the Covid-19 Pandemic Pressure (CPP₁₉) through the waves of the financial cycle waves is a determining concept in knowing the changes in the Covid-19 Pandemic Pressure (CPP₁₉) on the financial cycle in each period. Equation 11 measures the direction indication of the financial cycle wave movement, the relationship formed can be seen through the following equation:

(Ʃδ_1>0>-1+ Ʃλ_1>0>-1+ Ʃℓ_1>0>-1)/3+ (Ʃγ + Ʃυ)/2 = (Σρ_1>0>-1+ Σφ_1>0>-1+ Σσ_1>0>-1)/3 + (Ʃγ + Ʃυ)/2 (11)

Equation 11 proves that the financial cycle wave has undergone significant changes through the Covid-19 Pandemic Pressure (CPP₁₉). The financial cycle wave movement rate must be measured by determining the financial cycle wave stability point. This measurement creates a neutralization of the financial cycle wave movement as a separate measurement which is the Covid-19 Pandemic Pressure (CPP₁₉) filtering in the financial cycle wave, this can be described in the following equation:

(Ʃδ_1>0>-1+Ʃλ_1>0>-1+Ʃℓ_1>0>-1)/3+↕(Ʃγ+Ʃυ)/2 = (Σρ_1>0>-1+Σφ_1>0>-1+Σσ_1>0>-1)/3+↕(Ʃγ+Ʃυ)/2 (12)

Ʃ ((α/3_1>0>-1 - β/3_1>0>-1) + ↕( Ω/2)) (13)

The financial cycle wave stability measurement against the Covid-19 Pandemic Pressure (CPP₁₉) in Equation 12 or 13, shows that the financial cycle wave moves concentrated on the Covid-19 Pandemic Pressure (CPP₁₉), through the rate, pattern and pressure weight which are combined in a systematic measure of the financial cycle wave.

The emphasis on financial cycle pace and wave pattern is now determined by the Covid-19 Pandemic Pressure (CPP₁₉) amount, the pressure will go to the point of change in the wave. The Covid-19 Pandemic Pressure (CPP₁₉) process on the financial cycle wave illustrates two points of change in the financial cycle wave response from the Covid-19 Pandemic Pressure (CPP₁₉), while the two points are described in the following equation:

(Ʃδ_1>0>-1 + Ʃλ_1>0>-1 + Ʃℓ_1>0>-1)/3+↑(Ʃγ + Ʃυ)/2 = (Σρ_1>0>-1 + Σφ_1>0>-1 + Σσ_1>0>-1)/3+↑(Ʃγ + Ʃυ)/2 (14)

Ʃ ((α/3_1>0>-1 - β/3_1>0>-1) + ↑( Ω/2)) (15)

Ʃ ((α – β/6)_1>0>-1+ (Ω/2)) _{1< ∞}(16)

Financial penetration in Equations 14, 15 and 16, is the peak point through the financial cycle pressures and changes in the Covid-19 Pandemic Pressure (CPP₁₉). The Covid-19 Pandemic Pressure (CPP₁₉) measurement pushed the financial cycle wave direction to a peak, because the Covid-19 Pandemic Pressure (CPP₁₉) influence magnitude was more dominant than the financial cycle, the influence effect on the financial cycle had a positive impact. The stimulus for the financial cycle wave movement in the positive area can be interpreted as optimal, effective and efficient financial stability in a certain period as economic activity.

Other economic activity is in the relationship between the financial cycle and the Covid-19 Pandemic Pressure (CPP₁₉) on financial flows through a combination of pressures from the financial cycle in the opposite direction, the relationship can be illustrated in the following equation:

(Ʃδ_1>0>-1+ Ʃλ_1>0>-1 + Ʃℓ_1>0>-1)/3+↓(Ʃγ + Ʃυ)/2 = (Σρ_1>0>-1 + Σφ_1>0>-1 + Σσ_1>0>-1)/3 +↓(Ʃγ + Ʃυ)/2 (17)

Ʃ ((α/3_1>0>-1 - β/3_1>0>-1) + ↓( Ω/2)) (18)

Ʃ ((α – β/6)_1>0>-1+ (Ω/2))_{-1< ∞}(19)

The financial interactions in equations 17, 18 and 19 indicate the financial cycle wave is moving on a bust. The pressure characteristics are influenced by the Covid-19 Pandemic Pressure (CPP₁₉) severity due to the financial cycle wave combined with the Covid-19 Pandemic Pressure (CPP₁₉) negative intensity which suppresses the financial cycle movement pace to a negative area. This condition was responded by the financial system through a decrease in the financial stability level and economic growth, the negative effect would be to stimulate an acute financial depression when financial system policies were not effective.

Therefore, by the Covid-19 Pandemic Pressure (CPP₁₉) on the financial cycle based on the Ed Waves Index developing concept, can describe the Covid-19 Pandemic Pressure (CPP₁₉) on the financial cycle in an effort to maintain financial stability and economic growth, a change possibility in the financial system due to the Covid-19 Pandemic Pressure (CPP₁₉).

The study results found that the Covid-19 Pandemic Pressure (CPP₁₉) on the financial cycle had an effect on changes in financial stability and economic growth in Indonesia, related to the banking sector financial performance which plays an important role in regulating financial activities through Bank Indonesia policies.

Referring to the financial pressure measure during the Covid 19 Pandemic shows a decline in financial function through the business sector weakening which has an impact on the banking sector performance. The Covid-19 pandemic has also raised concerns about financial activity through a financial cycles wave in Indonesia.

Concerns about the Covid-19 pandemic require that measuring the Covid-19 Pandemic Pressure (CPP₁₉) impact on the financial cycle requires precise concept. The results provide clarity in decision making and can reduce the losses level for the country nationally and internationally.

The financial cycle wave measurement in Indonesia based on the Covid-19 Pandemic Pressure (CPP19) occurs through pressure which has implications for financial stability, especially to increase economic growth, the financial cycle waves movement as shown in Figure 2 below:

The financial cycle waves movement during the Covid-19 Pandemic resulted in a significant change in pressure. The Covid-19 Pandemic Pressure (CPP19) effect increased the financial cycle waves turbulence pressure in Indonesia.

The financial cycle movement in Indonesia, measured by changes in waves experiencing Covid-19 Pandemic Pressure (CPP₁₉), based on the identification of factors that influence the financial cycle waves movement, the size and category of financial cycle movement in Indonesia can be seen in Table 1 below:

Table 1

Financial Turbulency Results in Indonesia

α = β		Turbulency	Ω		Ʃαβ + Ω	Waves
Max	Min	Turbulency	Max	Min	Ʃαβ + Ω	Waves
0.030 A	0.000 A	CPP₁₉↑	0.000 A	-0.025 A	-0.020 A	Down
0.010 A	-0.010 A	CPP₁₉↕	0.000 A	-0.014 A	-0.009 A	Netral
0.000 A	-0.015 A	CPP₁₉↓	0.017 A	0.000 A	0.022 A	Up

Source : Data Processed, 2023

Financial cycle movements in Indonesia refers to the macroeconomic indicators pressure, financial cycle movements identification based on different pressures and implications, the financial turbulency can be classified into 3 types of pressure on financial cycle waves due to the Covid-19 Pandemic Pressure (CPP₁₉) in Indonesia.

Financial Turbulency 1, the pressure of the Covid-19 pandemic pressure (CPP₁₉) will increase, due to the spreading Covid-19 pandemic virus process. the economic sector slowed down and affected financial circulation in the form of a pressure shock on trade and business transactions that had an impact on financial stability in Indonesia.

The Covid-19 Pandemic Pressure (CPP₁₉ ↑) in the financial turbulency is characterized by an average pressure between -0.025 to 0.000 Amplitude through the base wave with a movement rate between 0.000 to 0.030 Amplitude. the total pressure shock detected by the financial cycle wave is -0.020 amplitude makes the financial cycle wave rate negative.

The Covid-19 Pandemic Pressure (CPP₁₉) implications have resulted in financial activities being halted through the Covid 19 Pandemic widespread spread. Economic indicators again stopped the financial cycle, resulting in a decline in the intermediary function in line with the decline in the banking system soundness, through a reduction in capital due to the high level of Non-Performing Loans.

The main factor for the high Non-Performing Loans was the business sector positive response due to the Covid-19 Pandemic Pressure (CPP₁₉) expansion, which resulted in declining financial profitability due to instability in financial deposits and bank lending.

The increasing Covid-19 Pandemic Pressure (CPP₁₉) is influenced by external and internal pressures which will result in weakening financial circulation, the trade transactions disconnection resulting in changes in the financial system, this condition will weaken the financial stability level.

The financial stability weakening has increased, resulting in several indicators of the economy moving unstable, and stimulating financial pressure which indicates a financial crisis, through the multiplayer effect factor that will affect various financial sectors in Indonesia.

This pressure is a special concern for the government by setting new policies by not abandoning old policy concepts such as giving vaccines and other social assistance, because the pandemic spreading process was very fast and indirectly damaged the financial system for maintained financial stability during the Covid-19 Pandemic Pressure (CPP₁₉) in Indonesia.

Financial Turbulency 2, the Covid-19 pandemic pressure (CPP₁₉) will not experience a change in pressure. The Covid-19 Pandemic spreading process has no impact on financial circulation, business sector transactions under normal conditions and there is no strong internal or external influence.

The Covid-19 Pandemic Pressure (CPP₁₉ ↕ ) through financial turbulency, characterized by an average pressure between -0.014 to 0.000 Amplitude through basic wave pressure, with a movement rate between -0.010 to 0.010 Amplitude, the financial cycle wave stimulus moves a total of -0.009 Amplitude, with a stable reaction to the financial cycle wave rate.

The financial cycle movement implications in this condition are more consistent with the Covid-19 Pandemic Pressure (CPP₁₉), which has a positive impact on economic indicators. The financial response considers this phase of financial pressure to be same as the previous condition, where the Covid-19 Pandemic Pressure (CPP₁₉) has no effect on changes in financial activity in Indonesia.

The financial circulation neutrality makes the banking sector work normally, the savings and credit distribution volume is balanced and does not cause strong reactions to changes in the financial cycle wave during the Covid-19 Pandemic Pressure (CPP₁₉) spread in Indonesia.

The Covid-19 Pandemic Pressure (CPP₁₉) contamination process from external and internal did not affect financial circulation, economic indicators moved stable, and the pressure pace did not act on financial sector activities in maintaining financial stability and economic growth.

Improved financial stability and economic growth can be achieved during the Covid-19 Pandemic Pressure (CPP₁₉), although the process is slow, the conditions are better when the pandemic development does not experience significant changes in financial activity in the community.

The application of this period's policy by maintaining existing policies and paying attention to the dynamics of financial movements against the Covid-19 Pandemic Pressure (CPP₁₉). The indicator movement neutrality is very sensitive to the reaction in any financial activity as long as the spread is still ongoing.

Financial Turbulency3, The pressure of the Covid-19 Pandemic (CPP₁₉) will decrease because the Covid-19 Pandemic does not spread, causing the economic sector to accelerate with positive stimulation, the financial wave circulation has an effect on increasing business sector transactions, economic growth can reach a peak even though slowly

The Covid-19 Pandemic Pressure (CPP₁₉↓) based on financial turbulency produces an average pressure between 0.000 to 0.017 Amplitude, through basic wave pressure with a movement rate between -0.015 to 0.000 Amplitude, resulting in a total pressure effect of 0.022 Amplitude on the financial cycle wave with positive rate (Up).

The Covid-19 Pandemic Pressure implications (CPP₁₉) is a positive stimulus to economic growth, which encourages financial circulation to move actively and spurs the economic indicators movement in the financial cycle to move upwards, as a financial implication on the financial sector.

The most influential impact on the banking sector is an increase in lending, which spurs the business sector movement, financial movements do not negatively affect the increase in Non-Performing Loans and banking health.

The banking health strengthening has an impact on the financial cycle as the resilience of the financial sector against the Covid-19 Pandemic (CPP₁₉) continues, which led to the peak achievement of the financial cycle movement, this stimulus created the financial circulation dynamics in the economic growth process in Indonesia.

Emphasis on growth can be carried out through a maximum policy implementation process, when the Covid-19 Pandemic Pressure (CPP₁₉) continues to increase, the negative response has no effect on the financial cycle wave, Therefore, the factors that strengthen economic growth are in line with optimal financial performance during the Covid-19 Pandemic Pressure increasing (CPP₁₉) in Indonesia.

Therefore, the financial cycle wave interaction against the Covid-19 Pandemic Pressure (CPP₁₉) provides a response to financial performance, especially the banking sector which plays an important role in maintaining financial stability and economic growth. The Covid-19 Pandemic spread magnitude which causes turbulence can be anticipated through financial circulation in other important sectors, this integration can encourage financial performance to achieve stability and optimal economic growth.

The financial cycle wave movement due to the Covid-19 Pandemic Pressure (CPP₁₉) with 3 financial turbulency, first, the Covid-19 Pandemic Pressure (CPP₁₉) has increased, then the financial cycle wave moves downward through the pressure magnitude − 0.020 Amplitude, which affects the financial stability level. Second, the Covid-19 Pandemic Pressure (CPP₁₉) is neutral, the financial cycle wave moves steadily with a pressure of -0.009 Amplitude, and does not affect financial stability and economic growth. Third, the Covid-19 Pandemic Pressure (CPP₁₉) has decreased, the financial cycle wave is moving towards a peak through a pressure magnitude of 0.022 Amplitude, with a positive effect on economic growth in Indonesia.

ACKNOWLEDGEMENTS

Thank you to National Research and Innovation Agency (BRIN) Jakarta for Post Doctoral Research Grant to do research at the Research Center for Macroeconomics and Finance BRIN.

Author’s Contribution

EB was a major contributor to the article, provider research idea and initial research framework, performed date gathering, estimation of the model and analysis and interpreted the results. ZS contributed to research framework. TW performed the calculations. EB drafted the manuscript, revised the manuscript and created the figures. CCM contributed to modelling process and estimation process as well as gave partial economic analysis to econometric results. All authors read and approved the final manuscript.

Availability of Data and Materials

The data sets used and analysed during the current study are available in The Cantral Bank of Indonesia (Bank Indonesia) (https://www.bi.go.id/id/statistik/Default.aspx). The Financial Services Authority (Otoritas Jasa Keuangan) (https://www.ojk.go.id/id/data-dan-statistik/default.aspx#). The Central Bureau of Statistics (Badan Pusat Statistik) (https://www.bps.go.id/).

Competing Interests

The authors declare that they have no competing interests.

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