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Toward Improved Monetary Policy in Indonesia

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Author Info
Ross McLeod ()
Abstract

Indonesia’s depreciation vastly exceeded that of all other countries hit by the Asian crisis. It 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 Indonesia’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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Publisher Info
Paper provided by Australian National University, Economics RSPAS in its series Departmental Working Papers with number 2002-10.

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Length: 28 pages
Date of creation: 2002
Date of revision:
Handle: RePEc:pas:papers:2002-10

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Related research
Keywords: base money inflation depreciation banking crisis lender of last resort.

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. J. Djiwandono, 2000. "Bank Indonesia and The Recent Crisis," Bulletin of Indonesian Economic Studies, Taylor and Francis Journals, vol. 36(1), pages 47-72, April. [Downloadable!] (restricted)
  2. Chris Manning, 1996. "Survey of Recent Developments," Bulletin of Indonesian Economic Studies, Taylor and Francis Journals, vol. 32(2), pages 3-43, August. [Downloadable!] (restricted)
  3. Stephen Parker & Posma Hutabarat, 1996. "Survey of Recent Developments," Bulletin of Indonesian Economic Studies, Taylor and Francis Journals, vol. 32(3), pages 3-31, December. [Downloadable!] (restricted)
  4. Armida S. Alisjahbana & Chris Manning, 2002. "Survey of Recent Developments," Bulletin of Indonesian Economic Studies, Taylor and Francis Journals, vol. 38(3), pages 277-305, December. [Downloadable!] (restricted)
  5. Halim Alamsyah, Charles Joseph, Juda Agung, Doddy Zulverdy, 2001. "Towards Implementation Of Inflation Targeting In Indonesia," Bulletin of Indonesian Economic Studies, Taylor and Francis Journals, vol. 37(3), pages 309-324, December. [Downloadable!] (restricted)
  6. Ross McLeod, 1999. "Crisis-Driven Changes to the Banking Laws and Regulations," Bulletin of Indonesian Economic Studies, Taylor and Francis Journals, vol. 35(2), pages 147-154, August. [Downloadable!] (restricted)
  7. Paul R. Deuster, 2002. "Survey Of Recent Developments," Bulletin of Indonesian Economic Studies, Taylor and Francis Journals, vol. 38(1), pages 5-37, April. [Downloadable!] (restricted)
  8. Ross McLeod, 1993. "Analysis and Management of Indonesian Money Supply Growth," Bulletin of Indonesian Economic Studies, Taylor and Francis Journals, vol. 29(2), pages 97-128, August. [Downloadable!] (restricted)
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(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Ross H McLeod, 2003. "Dealing with Bank System Failure: Indonesia, 1997-2002," Departmental Working Papers 2003-05, Australian National University, Economics RSPAS. [Downloadable!]
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This page was last updated on 2008-10-23.


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