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Towards Implementation Of Inflation Targeting In Indonesia

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  • Halim Alamsyah
  • Charles Joseph
  • Juda Agung
  • Doddy Zulverdy
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    Abstract

    The experience of high inflation accompanying the economic crisis in 1998 has brought back painful memories of hyperinflation in the 1960s. Success with inflation targeting (IT) in other countries has prompted Indonesia to consider this framework as the basis for monetary policy,a response that seems justified on at least two grounds. First, monetary policy needs a new anchor after the abandonment in 1997 of the previous regime of managed floating. Second, the central bank law enacted in 1999 prescribes stability of the value of the rupiah as Bank Indonesia's sole objective. This paper explores the future framework of monetary policy under a formal IT approach and highlights the constraints Bank Indonesia faces in implementing such an approach. It discusses the monetary policy framework before and during the crisis, and in the post-crisis period. It then goes on to outline a preliminary design for a suitable IT framework for Indonesia.

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    Bibliographic Info

    Article provided by Taylor & Francis Journals in its journal Bulletin of Indonesian Economic Studies.

    Volume (Year): 37 (2001)
    Issue (Month): 3 ()
    Pages: 309-324

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    Handle: RePEc:taf:bindes:v:37:y:2001:i:3:p:309-324

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    References

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    1. Stephen G. Cecchetti & Michael Ehrmann, 1999. "Does Inflation Targeting Increase Output Volatility? An International Comparison of Policymakers' Preferences and Outcomes," NBER Working Papers 7426, National Bureau of Economic Research, Inc.
    2. Alan S. Blinder, 1999. "Central Banking in Theory and Practice," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262522608, December.
    3. Ross Mcleod, 2005. "Survey of recent developments," Bulletin of Indonesian Economic Studies, Taylor & Francis Journals, vol. 41(2), pages 133-157.
    4. Drew, Aaron & Hunt, Benjamin, 2000. "Efficient simple policy rules and the implications of potential output uncertainty," Journal of Economics and Business, Elsevier, vol. 52(1-2), pages 143-160.
    5. Guy Debelle & Miguel A. Savastano & Paul R. Masson & Sunil Sharma, 1998. "Inflation Targeting as a Framework for Monetary Policy," IMF Economic Issues 15, International Monetary Fund.
    6. Guy Debelle, 1997. "Inflation Targeting in Practice," IMF Working Papers 97/35, International Monetary Fund.
    7. Nicoletta Batini & Andrew Haldane, 1999. "Forward-Looking Rules for Monetary Policy," NBER Chapters, in: Monetary Policy Rules, pages 157-202 National Bureau of Economic Research, Inc.
    8. Frederic S. Mishkin & Klaus Schmidt-Hebbel, 2001. "One decade of inflation targeting in the world : What do we know and what do we need to know?," Working Papers Central Bank of Chile 101, Central Bank of Chile.
    9. Mudrajad Kuncoro & Tri Widodo & Ross McLeod, 2009. "Survey of recent developments," Bulletin of Indonesian Economic Studies, Taylor & Francis Journals, vol. 45(2), pages 151-176.
    10. Charles Freedman, 1996. "What operating procedures should be adopted to maintain price stability? practical issues," Proceedings - Economic Policy Symposium - Jackson Hole, Federal Reserve Bank of Kansas City, pages 241-285.
    11. Schmidt-Hebbel, Klaus & Tapia, Matias, 2002. "Inflation targeting in Chile," The North American Journal of Economics and Finance, Elsevier, vol. 13(2), pages 125-146, August.
    12. Frederic S. Mishkin & Adam S. Posen, 1998. "Inflation Targeting: Lessons from Four Countries," NBER Working Papers 6126, National Bureau of Economic Research, Inc.
    13. Stephen Grenville, 2000. "Monetary Policy and the Exchange Rate During the Crisis," Bulletin of Indonesian Economic Studies, Taylor & Francis Journals, vol. 36(2), pages 43-60.
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    Cited by:
    1. Narayan, Paresh Kumar, 2007. "Is money targeting an option for Bank Indonesia?," Journal of Asian Economics, Elsevier, vol. 18(5), pages 726-738, October.
    2. Siregar, Reza.Y. & Goo, Siwei, 2009. "Effectiveness and Commitment to Inflation Targeting Policy: Evidences from Indonesia and Thailand," MPRA Paper 17271, University Library of Munich, Germany.
    3. Paul Deuster, 2002. "Survey Of Recent Developments," Bulletin of Indonesian Economic Studies, Taylor & Francis Journals, vol. 38(1), pages 5-37.
    4. Ross McLeod, 2003. "Towards improved monetary policy in Indonesia," Bulletin of Indonesian Economic Studies, Taylor & Francis Journals, vol. 39(3), pages 303-324.
    5. Ross H. McLeod, 2004. "Towards Improved Monetary Policy in Indonesia: Response to De Brouwer," Departmental Working Papers 2004-01, The Australian National University, Arndt-Corden Department of Economics.
    6. Reza Siregar & Siwei Goo, 2008. "Inflation Targeting Policy: The Experiences Of Indonesia And Thailand," CAMA Working Papers 2008-23, Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University.

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