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Towards improved monetary policy in Indonesia

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  • Ross McLeod

Abstract

Indonesia's depreciation vastly exceeded that of all other countries hit by the Asian crisis. Indonesia also experienced far higher inflation. This paper argues that there is a close medium to long-term relationship between money growth and inflation in Indonesia, and that this has not been greatly disturbed by the crisis. It argues that the country's disappointing performance in relation to maintaining the value of the rupiah can be explained by the central bank's failure to sterilise the monetary impact on base money of its last-resort lending to the banks. The fundamental lesson is that Bank Indonesia would be well advised to adopt slow and steady growth of base money as the nominal anchor for monetary policy, now that the pre-crisis policy of slow and steady depreciation of the rupiah has been abandoned.

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Bibliographic Info

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

Volume (Year): 39 (2003)
Issue (Month): 3 ()
Pages: 303-324

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Handle: RePEc:taf:bindes:v:39:y:2003:i:3:p:303-324

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References

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  1. Hadi Soesastro & M. Chatib Basri, 1998. "Survey of Recent Developments," Bulletin of Indonesian Economic Studies, Taylor & Francis Journals, vol. 34(1), pages 3-54.
  2. J. Soedradjad Djiwandono, 2000. "Bank Indonesia and The Recent Crisis," Bulletin of Indonesian Economic Studies, Taylor & Francis Journals, vol. 36(1), pages 47-72.
  3. Ross McLeod, 1999. "Crisis-Driven Changes to the Banking Laws and Regulations," Bulletin of Indonesian Economic Studies, Taylor & Francis Journals, vol. 35(2), pages 147-154.
  4. Halim Alamsyah & Charles Joseph & Juda Agung & Doddy Zulverdy, 2001. "Towards Implementation Of Inflation Targeting In Indonesia," Bulletin of Indonesian Economic Studies, Taylor & Francis Journals, vol. 37(3), pages 309-324.
  5. Arianto Patunru & Christian von Luebke, 2010. "Survey of recent developments," Bulletin of Indonesian Economic Studies, Taylor & Francis Journals, vol. 46(1), pages 7-31.
  6. Paul Deuster, 2002. "Survey Of Recent Developments," Bulletin of Indonesian Economic Studies, Taylor & Francis Journals, vol. 38(1), pages 5-37.
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Citations

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Cited by:
  1. Ross H McLeod, 2003. "Dealing with Bank System Failure: Indonesia, 1997-2002," Departmental Working Papers 2003-05, The Australian National University, Arndt-Corden Department of Economics.
  2. Reza Anglingkusumo, 2005. "Money - Inflation Nexus in Indonesia: Evidence from a P-Star Analysis," Tinbergen Institute Discussion Papers 05-054/4, Tinbergen Institute.
  3. Ross H Mcledo, 2008. "The Soeharto Era: From Beginning to End," Departmental Working Papers 2008-03, The Australian National University, Arndt-Corden Department of Economics.
  4. Takatoshi Ito & Kiyotaka Sato, 2006. "Exchange Rate Changes and Inflation in Post-Crisis Asian Economies: VAR Analysis of the Exchange Rate Pass-Through," Discussion papers 06018, Research Institute of Economy, Trade and Industry (RIETI).
  5. Hossain, Akhand Akhtar, 2010. "Monetary targeting for price stability in Bangladesh: How stable is its money demand function and the linkage between money supply growth and inflation?," Journal of Asian Economics, Elsevier, vol. 21(6), pages 564-578, December.
  6. Hadi Soesastro & Haryo Aswicahyono & Dionisius A. Narjoko, 2006. "Economic Reforms in Indonesia after the 1997/98 Economic Crisis," EABER Working Papers 21831, East Asian Bureau of Economic Research.
  7. George Fane, 2005. "Post-crisis monetary and exchange rate policies in Indonesia, Malaysia and Thailands," Bulletin of Indonesian Economic Studies, Taylor & Francis Journals, vol. 41(2), pages 175-195.
  8. Sánchez, Marcelo, 2010. "Modelling anti-inflationary monetary targeting: with an application to Romania," Working Paper Series 1186, European Central Bank.
  9. Takatoshi Ito & Kiyotaka Sato, 2006. "Exchange Rate Changes and Inflation in Post-Crisis Asian Economies: VAR Analysis of the Exchange Rate Pass-Through (Subsequently published in "Journal of Money, Credit and Banking", Volume 4," CARF F-Series CARF-F-063, Center for Advanced Research in Finance, Faculty of Economics, The University of Tokyo.
  10. 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.
  11. Takatoshi Ito & Yuri N. Sasaki & Kiyotaka Sato, 2005. "Pass-Through of Exchange Rate Changes and Macroeconomic Shocks to Domestic Inflation in East Asian Countries," Discussion papers 05020, Research Institute of Economy, Trade and Industry (RIETI).

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