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The Regional Impact of Monetary Policy in Indonesia

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Author Info

  • Masagus M. Ridhwan

    (VU University Amsterdam, and Bank Indonesia)

  • Henri L.F. de Groot

    (VU University Amsterdam)

  • Piet Rietveld

    (VU University Amsterdam)

  • Peter Nijkamp

    (VU University Amsterdam)

Abstract

This paper employs Vector Autoregression (VAR) models to measure the impact of monetary policy shocks on regional output in Indonesia. Having incorporated a possible structural break following the aftermath of the 1997-98 Asian Crisis, the impulse response functions derived from the estimated models reveal substantial cross-region variations in policy responses in terms of their magnitude and timing. Our work complements the existing literature by providing insights from a developing country. The results support previous findings that the differential regional effects of monetary policy are significantly related to sectoral composition (especially the share of manufacturing), providing evidence for the relevance of the interest rate channel of monetary policy. We also find that firm-size contributes to the differences, providing evidence for the relevance of the credit channel.

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Bibliographic Info

Paper provided by Tinbergen Institute in its series Tinbergen Institute Discussion Papers with number 11-081/3.

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Date of creation: 16 May 2011
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Handle: RePEc:dgr:uvatin:20110081

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Web page: http://www.tinbergen.nl

Related research

Keywords: monetary policy transmission; regional development; vector autoregression;

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Cited by:
  1. Ageliki Anagnostou & Stephanos Papadamou, 2012. "The effects of Monetary Policy shocks across the Greek Regions," ERSA conference papers ersa12p507, European Regional Science Association.

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