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Monetary Policy Model for Open Economy of Indonesia

Author

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  • Umar Juoro

Abstract

This paper explains stylized facts about the monetary economy in Indonesia covering the Bank Indonesia (BI) policy on the exchange rate, lending rates, inflation, real effective rate (REER), and growth. This is done to get an understanding on the impact of foreign policy (influenced by the Fed) on Indonesia’s monetary economy, with some attention to the fund rate. An empirical model of VAR (Vector Auto Regression) was developed to capture the impact of an increase in fund rate to Indonesia’s monetary sector. Furthermore, a theoretical model was developed to capture the result from empirical model. The theoretical model shows that the increase of fund rate influenced the increase of BI rate, lending rate, inflation, while reducing REER and growth.

Suggested Citation

  • Umar Juoro, 2013. "Monetary Policy Model for Open Economy of Indonesia," Bulletin of Monetary Economics and Banking, Bank Indonesia, vol. 16(1), pages 1-14, July.
    • Handle: RePEc:idn:journl:v:16:y:2013:i:1j:p:1-14
    DOI: https://doi.org/10.21098/bemp.v16i1.438
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    Cited by:

    1. Haryo Kuncoro, 2020. "Interest Rate Policy and Exchange Rates Volatility Lessons from Indonesia," Journal of Central Banking Theory and Practice, Central bank of Montenegro, vol. 9(2), pages 19-42.

    More about this item

    Keywords

    monetary policy; lending rate; inflation; exchange rate.;
    All these keywords.

    JEL classification:

    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics

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