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The Monetary Policy Regime In Indonesia

Author

Listed:
  • Solikin M. Juhro

    (Bank Indonesia)

  • Miranda S. Goeltom

Abstract

The challenges encountered after the financial crises of 1997 98 and 2008 09 have revealed some valuable lessons with regard to monetary policy. In a small open economy, such as that of Indonesia, the multiple challenges facing monetary policy as a result of capital flow dynamics, amid inflationary pressures, suggest that the monetary authorities should employ multiple instruments. This paper shows that coordinated implementation of a policy instrument mix should ultimately be part of an important strategy for optimally managing the monetary policy trilemma in the current climate, which is fraught with widespread uncertainty. It also shows that a post-GFC monetary policy framework in Indonesia is, generally, characterized by "enhanced" ITF. in "enhanced: ITF, the policy framework continues to adhere to an inflation target as the overriding objective of monetary policy. The main characteristics of ITF will remain, namely, that the inflation target is announced publicly and that the monetary policy is forward-looking, transparent, and clearly accountable. However, the ITF is implemented in a more feasible manner, which means that Bank Indonesia must not only look at the inflation target merely in terms of policy formulation but also consider a number of other factors, including financial sector stability and the dynamics of capital flows and the exchange rate. Therefore, achievement of macroeconomic stability not only is tied to monetary stability (price stability) but also interacts with financial system stability.

Suggested Citation

  • Solikin M. Juhro & Miranda S. Goeltom, 2013. "The Monetary Policy Regime In Indonesia," Working Papers WP/17/2013, Bank Indonesia.
    • Handle: RePEc:idn:wpaper:wp172013
    as

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    References listed on IDEAS

    as
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    2. Filardo, Andrew & Genberg, Hans, 2010. "Monetary Policy Strategies in the Asia and Pacific Region: What Way Forward?," ADBI Working Papers 195, Asian Development Bank Institute.
    3. Carmen M. Reinhart & Kenneth S. Rogoff, 2009. "The Aftermath of Financial Crises," American Economic Review, American Economic Association, vol. 99(2), pages 466-472, May.
    4. Doni Satria & Solikin M. Juhro, 2011. "Risk Behavior In The Transmission Mechanism Of Monetary Policy In Indonesia," Bulletin of Monetary Economics and Banking, Bank Indonesia, vol. 13(3), pages 1-28, January.
    5. Claudio Borio & Craig Furfine & Philip Lowe, 2001. "Procyclicality of the financial system and financial stability: issues and policy options," BIS Papers chapters, in: Bank for International Settlements (ed.), Marrying the macro- and micro-prudential dimensions of financial stability, volume 1, pages 1-57, Bank for International Settlements.
    6. Alan S. Blinder, 2010. "How Central Should the Central Bank Be?," Journal of Economic Literature, American Economic Association, vol. 48(1), pages 123-133, March.
    7. Alan S. Blinder, 2010. "How Central Should the Central Bank Be?," Journal of Economic Literature, American Economic Association, vol. 48(1), pages 123-133, March.
    Full references (including those not matched with items on IDEAS)

    Citations

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    Cited by:

    1. Solikin M. Juhro, 2014. "THE ROLE OF THE CENTRAL BANK IN PROMOTING SUSTAINABLE GROWTH: Perspectives on the Implementation of Flexible ITF in Indonesia," Working Papers WP/17/2014, Bank Indonesia.
    2. Hendy Sulistiowaty & Widi Agustin Srihanoki, 2017. "Statistical implications of evolving monetary policy: the case of Indonesia," IFC Bulletins chapters, in: Bank for International Settlements (ed.), Statistical implications of the new financial landscape, volume 43, Bank for International Settlements.
    3. Solikin M. Juhro & Bernard Njindan Iyke, 2019. "Monetary Policy And Financial Conditions In Indonesia," Bulletin of Monetary Economics and Banking, Bank Indonesia, vol. 21(3), pages 1-20, January.
    4. Solikin M. Juhro & Paresh Kumar Narayan & Bernard Njindan Iyke, 2022. "Understanding monetary and fiscal policy rule interactions in Indonesia," Applied Economics, Taylor & Francis Journals, vol. 54(45), pages 5190-5208, September.

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    More about this item

    Keywords

    Monetary policy; Inflation Targeting Framework (ITF); Flexible ITF; Bank Indonesia;
    All these keywords.

    JEL classification:

    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • 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
    • E63 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Comparative or Joint Analysis of Fiscal and Monetary Policy; Stabilization; Treasury Policy

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