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Monetary and macroprudential policies in the presence of external shocks: evidence from an emerging economy

Author

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  • Alexander Lubis
  • Constantinos Alexiou
  • Joseph G. Nellis

Abstract

Purpose - This paper examines the impact of using the reserve requirements, combined with foreign exchange (FX) intervention, as key instruments in an inflation-targeting framework. Design/methodology/approach - In the context of a dynamic stochastic general equilibrium (DSGE) framework and using Bayesian techniques, the authors estimate a model for the Indonesian economy using quarterly data spanning the period 2005Q2–2019Q4. Findings - The reserve requirement is found to assume a complementary role to that of the interest rate policy and FX intervention when used to stabilise the macroeconomy. Originality/value - This paper provides a benchmark for other emerging countries that consider adopting the inflation targeting framework and impose an FX intervention as part of their monetary policy.

Suggested Citation

  • Alexander Lubis & Constantinos Alexiou & Joseph G. Nellis, 2021. "Monetary and macroprudential policies in the presence of external shocks: evidence from an emerging economy," Journal of Economic Studies, Emerald Group Publishing Limited, vol. 49(6), pages 960-977, July.
    • Handle: RePEc:eme:jespps:jes-11-2020-0577
    DOI: 10.1108/JES-11-2020-0577
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