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The Trilemma, Inflation and Central Bank Balance Sheet : The Case of Indonesia

Author

Listed:
  • Mohamad Ikhsan
  • Yoga Affandi
  • Firman Mochtar

Abstract

This paper aims to understand the relations between Indonesia's impossible trilemma and inflation. The study found the monetary policy framework implemented by Bank Indonesia has led the trilemma configuration in Indonesia into a more flexible exchange rate regime, greater monetary policy independence, and growing financial integration. This fact eventually has contributed favorably in lowering inflationary pressures in Indonesia. However, living with the trilemma in the open economy has a consequence. During the resurgence of capital inflows since the early of 2009, the sterilized FX intervention strategy conducted by Bank Indonesia to prevent excessive volatility of rupiah and support price stability has raised the outstanding of open market operations instruments and shifted Bank Indonesia's balance sheet

Suggested Citation

  • Mohamad Ikhsan & Yoga Affandi & Firman Mochtar, 2012. "The Trilemma, Inflation and Central Bank Balance Sheet : The Case of Indonesia," Economics and Finance in Indonesia, Faculty of Economics and Business, University of Indonesia, vol. 60, pages 127-144, August.
    • Handle: RePEc:lpe:efijnl:201206
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    More about this item

    Keywords

    Central Banking; Monetary Policy; Indonesia;
    All these keywords.

    JEL classification:

    • E51 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Money Supply; Credit; Money Multipliers
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • O53 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - Asia including Middle East

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