This paper presents a number of responses to Gordon de Brouwer's criticisms of my paper on monetary policy in Indonesia. Among other things, it argues that de Brouwer has failed to disentangle the impact of two exogenous disturbances on prices - and relative prices - during the crisis and post-crisis period. These disturbances were capital flight, which resulted in real depreciation of the rupiah, and rapid growth of base money, which resulted in inflation. Thus all prices rose, but tradables prices rose more than those of non-tradables. The paper also shows that the kind of monetary policy that de Brouwer criticises, which I describe here as active monetary policy, or fine-tuning, is quite different from the one I proposed in my paper - namely passive monetary policy, the settings of which are changed infrequently, if at all. Other misstatements of my arguments and views are also discussed.
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Paper provided by Australian National University, Economics RSPAS in its series Departmental Working Papers with number
2004-01.
Find related papers by JEL classification: E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation 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 E61 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Policy Objectives; Policy Designs and Consistency; Policy Coordination E65 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Studies of Particular Policy Episodes
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