ABSTRACT
On 23 June 2016, an important moment in British history was the referendum on Brexit. In this referendum the majority of the people of the United Kingdom (51.9%) voted for Britain to leave the European Union (EU), after more than 40 years of being part of this giant political and economic block. Several analyses have been made regarding the impact on the global economy. Dhingra et al. (2016) for example, analysed the consequences of Brexit for the global economy especially for EU members and concluded that all EU members would be worse off. As an open economy Indonesia would also be impacted directly and indirectly. This paper quantitatively measures the impact of Brexit on the Indonesian economy. The methods used to measure the impact are Vector Auto Regression (VAR) method and Global Vector Autoregression (GVAR). VAR and GVAR method assess the impact of Brexit through the capital, financial, and foreign exchange markets (interest rate, exchange rate, and equity market) resulting from increased global uncertainty. Indonesia’s economic relations with United Kingdom in the monetary and real sectors were assessed, and the result shows that the direct impact would be modest. The impact of Brexit is stronger in the monetary/financial channel than in the real sector channel (GDP, trade and investment). The global VAR model conducted a simple correlation analysis and found that the impact of Brexit on China is stronger than on the eurozone. Several policy anticipations could be derived from this research to minimise the loss of Brexit to Indonesian economy as well as Indonesian society, such as anticipating indirect effect from China and increasing credibility of government to manage market expectation because we found stronger financial response from Brexit (stock market, exchange rate, and interest rate).
