About

I hold a PhD in Economics from the Research School of Economics at the Australian National University (ANU), where my doctoral research examined the interplay among informality, markups, and resource misallocation in developing country. My research provides a more detailed analysis of the labour market in Indonesia and how the duality of the labour market, comprising both formal and informal sectors, experiences different earning shocks and contributes to inequality. Additionally, the research assesses the aggregate implications of capital and labour misallocations arising from limited job transitions between sectors in the labour market. Moreover, the research discusses misallocation from the perspective of firms, which is attributed to markups. I also completed a master's degree in Economics at ANU, and I hold a bachelor's degree in Mathematics from Institut Teknologi Bandung (ITB), Indonesia.

Throughout my career, I have developed extensive experience in the research industry, with a particular focus on economic modelling for macroeconomic projections and policy simulations. My work draws on structural and applied modelling techniques, including DSGE and related quantitative frameworks. I regularly use MATLAB, Python, and R to build, estimate, and simulate these models. I have authored several papers examining how monetary and macroprudential policies interact with the banking sector, contributing to the broader literature on financial stability and policy design in small open economies.

My research interests span macroeconomics and development economics, with a particular emphasis on monetary policy transmission, income distribution, and resource misallocation. These themes reflect a broader interest in how policy choices affect not only aggregate outcomes but also the distribution of economic welfare across households and firms.

I currently serve as an Assistant Director or Senior Economist at Bank Indonesia, where I contribute to macroeconomic modelling and policy analysis for the central bank's monetary policy committee. In addition, I served as a core member of the Macro Public Finance Lab at ANU.

Research tools

• Python
• STATA
• MATLAB
• EViews
• R

Recent work in progress

Markup and Misallocation in Developing Country: Evidence from Indonesia

This paper offers a preliminary exploration of potential mechanisms influencing the formation of the markup distribution through comparative analysis, aiming to identify the most significant channels that contribute to the disparities observed between these firms. Due to their receptiveness to technology transfer opportunities via foreign direct investment, foreign firms enjoy superior access to technology and exhibit higher productivity levels. By operating on a larger scale, foreign entities are capable of diminishing unit costs and attaining economies of scale. Predominantly, foreign firms are integrated within global value chains, thereby benefiting from enhanced access to efficient, high-quality, and reliable global suppliers. In contrast, domestic firms typically experience reduced access to technology transfer, and their limited participation in global supply chains constrains their ability to engage with efficient suppliers. Furthermore, the majority of domestic firms cater exclusively to the local market; consequently, they operate at smaller economies of scale and remain unable to substantially reduce their unit costs. Nonetheless, structural, regulatory, and market-related barriers constrain the proportion of foreign firms within the economy.

We document how markup, firms’ age, productivity, and size correlate with each other utilising firm-panel data. Our findings indicate that older firms generally exhibit higher markups, particularly among foreign entities, suggesting their capacity to establish a more substantial disparity between product prices and marginal costs. Moreover, firms with elevated productivity levels tend to command higher markups, predominantly seen in foreign firms that exhibit significantly greater markups, thereby reflecting their capability to produce goods at lower costs while retaining competitiveness among high-productivity operations. Additionally, net employment growth diminishes in response to rising markups, highlighting the negative repercussions of markup increases and underscoring the necessity for a thorough analysis of this phenomenon.

We then investigate the underlying mechanisms through a theoretical model that combines imperfectly competitive product market competition with Schumpeterian growth dynamics. We examine the primary mechanism through which foreign firms achieve higher markups compared to domestic firms. We utilised comparative analysis to evaluate the calibration parameters and outcomes for each type of firm. Our findings indicate that the creative destruction channel associated with new firms substantially influences the differences between foreign and domestic firms. A markedly lower equilibrium entry rate for foreign firms results in higher and more dispersed markups, with adverse implications for higher misallocation in TFP and a reduced labour share of income. Our simulations show that relaxing entry barriers for foreign firms can lower both average markups and their dispersion, thus reducing TFP misallocation and mitigating labour share losses. These effects are particularly pronounced when foreign firms operate across multiple markets rather than being restricted to a few.


Only for illustration. Source: unsplash

Prevalent Informality and Labour Allocation

Informality is a phenomenon that generally occurs in developing countries, with an average informal share of employment of 39.4% between 2008 and 2018. This is much higher than in developed countries, only 14.4% during the same period. High informality is positively correlated with low GDP per capita and high inequality. The low level of productivity in informal activities results in low income levels and income growth, resulting in a wide income gap with workers in the formal sector who have higher productivity. Low productivity and high inequality are two major challenges developing countries face, exacerbated by low labour mobility between sectors.

We develop a heterogeneous agent general equilibrium framework that integrates the formal and informal labour markets within a two-sector economy featuring occupational choice, where informality serves as the equilibrium outcome. We contribute to the literature on how informality affects output and inequality simultaneously under conditions of low labour market mobility. Our model is built using the characteristics of an economy dominated by informal workers, where workers possess different assets and skills—both working and managerial—that determine the endogenous allocation of labour in the economy. Workers will optimally select the job that offers the best expected utility, whether as a wage worker, formal entrepreneur, or informal entrepreneur. The analysis is conducted with a counterfactual scenario of varying degrees of restrictions on labour mobility. This study complements the literature on the macroeconomic consequences of informality, particularly under minimal labour mobility, a condition that other studies have not addressed.

We found that the labour market in Indonesia has a low mobility and asymmetric transition, characterised by a low transition rate between the formal and informal sectors. The transition rate from formal to informal workers is higher than vice versa, with the rates remaining low. This pattern has resulted in the dominance of informal workers in Indonesia. The high informational friction and high barrier to entering formal employment are some of the reasons that shape the market. Most informal workers have limited access to training opportunities, hindering their human capital accumulation and making them less competitive in the formal job market. They may choose to remain as informal workers due to their skill sets or lack of formal qualifications. Even if workers possess the talents that employers are looking for, some may find it challenging to find the right match for these skills due to the minimum labour market information, which causes some of them to work in the informal sector to get income immediately.

Furthermore, the presence of informality hinders economic growth by impeding capital accumulation and keeping aggregate productivity low, while also contributing to inequality through productivity differences between the two sectors. Insufficient labour mobilisation between sectors plays a significant role. The frictions causing low labour mobilisation result in inefficient labour allocation and hinder capital accumulation, leading to resource misallocation. When labour shifts to the formal sector, overall capital increases; conversely, it decreases when labour moves to the informal sector, affecting productivity and output. The lack of access to financial markets for most entrepreneurs exacerbates these challenges. Entrepreneurs are unable to expand their businesses, which restricts productivity and fails to contribute to the accumulation of aggregate capital.


Only for illustration. Source: unsplash

Informality, Earnings Dynamics and Inequality: The Case of Indonesia

We document the empirical pattern of labour earnings inequality and dynamics within the developing economy of Indonesia, which is predominantly characterised by informal workers. Utilising individual panel data, our findings indicate that the substantial earnings disparity between formal and informal workers significantly contributes to elevated levels of earnings inequality. The rigidity and asymmetry associated with workers’ transitions between sectors further exacerbate this disparity, resulting in informal workers’ earnings lagging behind across various earnings groups. An increased transition ratio from informal to formal employment is anticipated to enhance earnings fluctuations for the involved workers and mitigate the widening earnings gap. It is important to note that workers within each employment sector encounter different characteristics of the earnings shock process. Formal workers exhibit a less Gaussian distribution, characterised by lower variances, but they experience greater third-order and fourth-order earnings risks when compared to informal workers. Informal workers, in contrast, adhere to a Gaussian distribution, characterised by symmetric earnings risks and a limited extreme earnings risks.

We also investigate the extent to which family earnings, capital income, and private transfers contribute to the alleviation of earnings risks. In the context of mitigating thirdorder earnings risks, family earnings assume a pivotal role, particularly for formal workers, who are markedly affected by these risks. Family earnings are able to enhance skewness, thereby assisting in the mitigation of potential declines in earnings from the primary earner or the head of the household. Furthermore, social networks, in relation to private transfers, significantly enhance efforts to mitigate third-order earnings risks, particularly among low- and middle-income earners as well as both formal and informal workers. Notably, the impact of social networks surpasses that of family earnings alone. It is imperative to increase the share of formal workers to narrow the earnings gap by reducing informal employment. While social networks help mitigate some of the earnings risks for individual workers, facilitating the transition to formal employment needs to be encouraged to improve aggregate macroeconomic indicators.


Only for illustration. Source: unsplash

Recent accomplished work

Monetary and Macroprudential Policy Mix under Financial Frictions Mechanism with DSGE Model

This research presents a Dynamic Stochastic General Equilibrium (DSGE) model tailored for Indonesia's small open economy, augmented by financial frictions manifesting as collateral constraints among households and a financial accelerator affecting entrepreneurs. By incorporating the banking sector into the model, it facilitates an examination of the policies necessary to mitigate shocks arising from the banking sector and their repercussions on financial intermediaries, specifically banks, within the economy.

The model illustrates that shocks within the banking sector, such as an increase in the Capital Adequacy Ratio (CAR) requirement, influence the real sector via the credit channel, consequently undermining Gross Domestic Product (GDP) and causing a decrease in the inflation rate. The mechanism of the financial accelerator evidenced in the model reveals a procyclical nature of the financial system in relation to economic conditions. Economic contractions prompt a reduction in the amount of credit extended by the banking sector, which represents the primary risk encountered by banks. In situations characterized by an uptick in ex-post idiosyncratic shocks, surpassing ex-ante projections, it becomes evident that the banks' assessments of an entrepreneur's anticipated return on capital outweigh actual outcomes, compelling banks to absorb the associated risks. Such circumstances induce banks to curtail credit allocations to safeguard their capital reserves.

Simulations indicate that a combined approach of monetary and macroprudential policies not only secures sustainable GDP growth and stable inflation but also contributes to the regulation of consumption, thereby decreasing the demand for imported goods. In conjunction with stable export levels, a deceleration in imports is likely to yield beneficial effects on the current account.


Only for illustration. Source: unsplash

Labor Market Impact of Export in A Commodity-Dependent Nation: The Case of Indonesia

Developing economies’ participation in the export market has expanded considerably in the last two to three decades. However, there is no clear evidence that this has improved labor market outcomes. Informality is still persistently high, and inequality, in a broader sense, has risen in many parts of developing economies. In addition, some studies have linked commodity-driven export expansion with the Dutch disease effect, arguing that export expansion will not necessarily lead to improvement in labor market performance as it could simultaneously weaken the manufacturing sector, which is the main provider of formal jobs in the economy.

We revisit this issue by studying the export expansion episode of a major commodity- dependent nation, namely Indonesia. Rather than focusing only on commodity exports, we measure all export changes in tradable goods. To isolate exogenous variation in Indonesia’s export, we focus on Indonesia’s export expansion to the PRC between 2000 and 2007, as this period represents the time when the PRC dramatically rose as a major importer in the world’s economy following its accession to the WTO. This exogenous import demand shock in the PRC has increased exports not only from Indonesia but also from other developing countries in Asian and Latin American regions. We then assess the impact of this export expansion to the PRC on individuals’ labor market outcomes, which we obtained from the IFLS database. In particular, we compare the total number of years spent in formal employment and earnings growth from 2000 to 2014 of individuals who live in districts with larger exposure to export expansion to the PRC relative to those in less exposed ones. We further gauge how equal this export expansion has been by analyzing the heterogeneous impact of export expansion across individuals with different positions in terms of income distribution.

We discover that individuals living in districts with greater exposure to export expansion to the PRC between 2000 and 2007 tended to have larger formal employment prospects in cumulative terms. The overall impact on total earnings growth is also positive but not statistically significant. We also find that the impact of export expansion has been relatively progressive as improvements in formal job opportunities and earnings growth induced by exports are directed mostly towards individuals in the lower- and middle-income brackets. These results remain intact even when the instrument is assumed to be weak and violates the exclusion restriction assumption. Inference does not change either as we experiment with different specifications, data treatment techniques, and IV constructions.

These results are mainly underpinned by the effect of manufacturing export expansion. Due to the PRC’s emergence in the global economy, Indonesia experienced not only a substantial increase in the export of commodities but also a meaningful growth in the export of manufactured products. We discover that the positive impact of export expansion on formal job opportunities and earnings growth is mostly concentrated in districts with greater specialization in manufacturing activities, whereas there appears to be no statistically significant effect for individuals in commodity-reliant districts. This arguably relates to the nature of the manufacturing sector, which tends to absorb more formal rather than informal employment. Formal jobs tend to be more secure and pay a better salary. Understandably, improvement in labor market outcomes is more likely to occur under expansion in manufacturing exports rather than commodity ones. These findings highlight the importance of maintaining the manufacturing sector’s competitiveness in a commodity-dependent nation like Indonesia as a source to improve labor market performance.

However, the main caveat of our empirical strategy is that it is not designed to interpret any aggregate trend at the national level. The research design employed by this study can only answer the relative impact of export across individuals living in different exposure sites. This means we cannot link the rising role of commodity export during an export boom period with the PRC and the resulting high informality and inequality at that time. Explaining these aggregate trends, in our view, requires a more general equilibrium approach rather than a micro-econometric one. This could be a promising avenue for future research. Another limitation of this paper is that the empirical design holds individuals’ residences fixed in the initial period before the PRC’s accession to the WTO. Although this is needed to avoid sorting effects, it cannot explain the question of labor mobility as a result of a major export shock. We show that the role of internal migration in our data appears to be limited and less likely to alter the inference. This is due to its small magnitude and declining trend over time. However, this is based purely on descriptive works and does not answer the question as to whether or not export induces workers to move across regions and sectors – another topic that has been the core of trade theory yet remains an open empirical puzzle.


Only for illustration. Source: unsplash

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Contact:

Sjafruddin Prawiranegara Tower, Floor 22
Bank Indonesia
Jl. M.H. Thamrin No.2
Jakarta Pusat, 10350
Indonesia

Email: fajar.oktiyanto@anu.edu.au
Email: fajar_o@bi.go.id
Linkedin: fajaroktiyanto

Other links:

ANU webpage
Google Scholar