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The Regional Impact of Monetary Policy in Indonesia

Author

Listed:
  • Masagus M. Ridhwan
  • Henri L. F. Groot
  • Piet Rietveld
  • Peter Nijkamp

Abstract

This paper employs vector autoregressive (VAR) models to measure the impact of monetary policy shocks on regional output in Indonesia. We find substantial cross-regional variation in policy responses in terms of both magnitude as well as timing. Our work adds to the existing literature by providing insights from a large developing country, viz. Indonesia, where monetary policy has both a national and a regional dimension. 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 these differences, providing evidence for the importance of the credit channel. As a whole, both types of channels appear to operate simultaneously in the decentralized Indonesian monetary policy and to impact on the real part of the regional economy.

Suggested Citation

  • Masagus M. Ridhwan & Henri L. F. Groot & Piet Rietveld & Peter Nijkamp, 2014. "The Regional Impact of Monetary Policy in Indonesia," Growth and Change, Wiley Blackwell, vol. 45(2), pages 240-262, June.
    • Handle: RePEc:bla:growch:v:45:y:2014:i:2:p:240-262
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    Cited by:

    1. Angeliki ANAGNOSTOU & Stephanos PAPADAMOU, 2014. "The Impact Of Monetary Shocks On Regional Output: Evidence From Four South Eurozone Countries," Region et Developpement, Region et Developpement, LEAD, Universite du Sud - Toulon Var, vol. 39, pages 105-130.
    2. Blanco, Emilio & Elosegui, Pedro & Izaguirre, Alejandro & Montes-Rojas, Gabriel, 2019. "Regional and state heterogeneity of monetary shocks in Argentina," The Journal of Economic Asymmetries, Elsevier, vol. 20(C).
    3. Ageliki Anagnostou & Stephanos Papadamou, 2012. "The effects of Monetary Policy shocks across the Greek Regions," ERSA conference papers ersa12p507, European Regional Science Association.
    4. Anping Chen & Nicolaas Groenewold, 2022. "Regional Resilience in China: The Response of the Provinces to the Growth Slowdown," The Review of Regional Studies, Southern Regional Science Association, vol. 52(1), pages 74-103.
    5. Anping Chen & Nicolaas Groenewold, 2019. "The effects of China’s growth slowdown on its provinces: Disentangling the sources," Growth and Change, Wiley Blackwell, vol. 50(4), pages 1260-1279, December.
    6. Svensson, Emma, 2012. "Regional Effects of Monetary Policy in Sweden," Working Papers 2012:9, Lund University, Department of Economics, revised 01 Mar 2013.
    7. Vadim Napalkov & Anna Novak & Andrey Shulgin, 2021. "Variations in the Effects of a Single Monetary Policy: The Case of Russian Regions," Russian Journal of Money and Finance, Bank of Russia, vol. 80(1), pages 3-45, March.
    8. Barkhordari, Sajjad & Forughi Far, Mohsen, 2020. "The Dynamic Regional Effects of Monetary Policy on Employment in Iran (TVP-FAVAR Approach)," Quarterly Journal of Applied Theories of Economics, Faculty of Economics, Management and Business, University of Tabriz, vol. 6(4), pages 109-136, February.
    9. Chandra Utama & Miryam B.L. Wijaya & Charvin Lim, 2017. "The Role Of Interest Rates And Provincial Monetary Aggregate In Maintaining Inflation In Indonesia," Bulletin of Monetary Economics and Banking, Bank Indonesia, vol. 19(3), pages 267-286, January.
    10. Dominguez-Torres, Helena & Hierro, Luis Ángel, 2020. "Are there monetary clusters in the Eurozone? The impact of ECB policy," Journal of Policy Modeling, Elsevier, vol. 42(1), pages 56-76.
    11. Aloysius Gunadi Brata & Henri L. F. de Groot & Wouter Zant, 2018. "The Impact of the 2006 Yogyakarta Earthquake on Local Economic Growth," Economics of Disasters and Climate Change, Springer, vol. 2(2), pages 203-224, July.
    12. Saibal Ghosh, 2013. "The economics and politics of output volatility: evidence from Indian states," International Review of Applied Economics, Taylor & Francis Journals, vol. 27(1), pages 110-134, January.
    13. Andrei Shevelev & Maria Kvaktun & Kristina Virovets, 2021. "Effect of Monetary Policy on Investment in Russian Regions," Russian Journal of Money and Finance, Bank of Russia, vol. 80(4), pages 31-49, December.
    14. Li, Huan & Ni, Jinlan & Xu, Yueli & Zhan, Minghua, 2021. "Monetary policy and its transmission channels: Evidence from China," Pacific-Basin Finance Journal, Elsevier, vol. 68(C).
    15. Chung, Min-Su & Lim, Hyunjoon, 2024. "Transmission of external shocks and regional heterogeneity: Evidence from Korean province-level data," Journal of Asian Economics, Elsevier, vol. 94(C).
    16. Groenewold, Nicolaas, 2018. "Australia saved from the financial crisis by policy or by exports?," Journal of Policy Modeling, Elsevier, vol. 40(1), pages 118-135.
    17. Hasan Engin DURAN & Umut ERDEM, 2014. "Regional Effects Of Monetary Policy: Turkey Case," Regional and Sectoral Economic Studies, Euro-American Association of Economic Development, vol. 14(1), pages 133-144.
    18. Anping Chen & Nicolaas Groenewold, 2019. "Macroeconomic shocks in China: Do the distributional effects depend on the regional source?," The Annals of Regional Science, Springer;Western Regional Science Association, vol. 62(1), pages 69-97, February.
    19. Harry Aginta & Masakazu Someya, 2022. "Regional economic structure and heterogeneous effects of monetary policy: evidence from Indonesian provinces," Journal of Economic Structures, Springer;Pan-Pacific Association of Input-Output Studies (PAPAIOS), vol. 11(1), pages 1-25, December.

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    More about this item

    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
    • R11 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - Regional Economic Activity: Growth, Development, Environmental Issues, and Changes
    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models

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