IDEAS home Printed from https://ideas.repec.org/a/idn/journl/v13y2011i4hp435-460.html

Monetary Transmission Of Persistent Shock To The Risk Premium: The Case Of Indonesia

Author

Listed:
  • Akhis R. Hutabarat

    (Bank Indonesia)

Abstract

This paper investigates the relative importance of monetary transmission channel to inflation of passing persistent shock to the risk premium. The findings show that nominal exchange rate depreciation, triggered by a more persistent shock to interest risk premium, worsens the state of the economy in the short- and long-run. Such distinctive shocks effect is transmitted through the economy that typifies lack of response of consumer price disinflation to interest rate tightening caused by high real rigidity, strong cost channel of interest rate, strong cost channel of exchange rate pass-through and weak demand-side channel of exchange rate pass-through. This study suggests a proper monetary policy response, which is the smallest interest rate increases within the feasible set of monetary policy responses that the model recommends, to minimize the adverse effects of the shocks.

Suggested Citation

  • Akhis R. Hutabarat, 2011. "Monetary Transmission Of Persistent Shock To The Risk Premium: The Case Of Indonesia," Bulletin of Monetary Economics and Banking, Bank Indonesia, vol. 13(4), pages 435-460, April.
    • Handle: RePEc:idn:journl:v:13:y:2011:i:4h:p:435-460
    DOI: https://doi.org/10.21098/bemp.v13i4.401
    as

    Download full text from publisher

    File URL: https://bulletin.bmeb-bi.org/cgi/viewcontent.cgi?article=1327&context=bmeb
    Download Restriction: no
    File URL: https://libkey.io/https://doi.org/10.21098/bemp.v13i4.401?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    References listed on IDEAS

    as
    1. Stephen Murchison & Andrew Rennison & Zhenhua Zhu, 2004. "A Structural Small Open-Economy Model for Canada," Staff Working Papers 04-4, Bank of Canada.
    2. Alwyn Young, 1995. "The Tyranny of Numbers: Confronting the Statistical Realities of the East Asian Growth Experience," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 110(3), pages 641-680.
    3. Ravenna, Federico & Walsh, Carl E., 2006. "Optimal monetary policy with the cost channel," Journal of Monetary Economics, Elsevier, vol. 53(2), pages 199-216, March.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Akhis HUTABARAT, 2010. "Monetary Transmission of Elongated Shock to the Risk Premium," EcoMod2010 259600078, EcoMod.
    2. Thorvardur Tjörvi Ólafsson, 2006. "The New Keynesian Phillips Curve: In Search of Improvements and Adaptation to the Open Economy," Economics wp31_tjorvi, Department of Economics, Central bank of Iceland.
    3. repec:idn:journl:v:13:y:2011:i:4h:p:435-468 is not listed on IDEAS
    4. Bjørnland, Hilde C., 2009. "Monetary policy and exchange rate overshooting: Dornbusch was right after all," Journal of International Economics, Elsevier, vol. 79(1), pages 64-77, September.
    5. Rao, B. Bhaskara, 2010. "Estimates of the steady state growth rates for selected Asian countries with an extended Solow model," Economic Modelling, Elsevier, vol. 27(1), pages 46-53, January.
    6. Santos, João & Domingos, Tiago & Sousa, Tânia & St. Aubyn, Miguel, 2016. "Does a small cost share reflect a negligible role for energy in economic production? Testing for aggregate production functions including capital, labor, and useful exergy through a cointegration-based method," MPRA Paper 70850, University Library of Munich, Germany.
    7. Teranishi, Yuki, 2012. "Credit spread and monetary policy," Economics Letters, Elsevier, vol. 114(1), pages 26-28.
    8. Lee, Jong-Wha, 2005. "Human capital and productivity for Korea's sustained economic growth," Journal of Asian Economics, Elsevier, vol. 16(4), pages 663-687, August.
    9. Muhammad Shafiullah & Ravinthirakumaran Navaratnam, 2016. "Do Bangladesh and Sri Lanka Enjoy Export-Led Growth? A Comparison of Two Small South Asian Economies," South Asia Economic Journal, Institute of Policy Studies of Sri Lanka, vol. 17(1), pages 114-132, March.
    10. Jesper Stage, 2002. "Structural Shifts In Namibian Energy Use: An Input‐Output Approach," South African Journal of Economics, Economic Society of South Africa, vol. 70(6), pages 1103-1125, September.
    11. Rajesh Singh & Chetan Subramanian, 2008. "The optimal choice of monetary policy instruments in a small open economy," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 41(1), pages 105-137, February.
    12. Euler Pereira Gonçalves de Mello & Paulo Brigido Rocha Macedo, 2003. "Total Factor Productivity, Technical Efficiency, Scale Change and Technical Change for 27 Brazilian Industries During the Period 1996-2000," Anais do XXXI Encontro Nacional de Economia [Proceedings of the 31st Brazilian Economics Meeting] d35, ANPEC - Associação Nacional dos Centros de Pós-Graduação em Economia [Brazilian Association of Graduate Programs in Economics].
    13. Jack Rossbach & Jose Asturias, 2017. "Misallocation in the Presence of Multiple Production Technologies," 2017 Meeting Papers 1094, Society for Economic Dynamics.
    14. Jun, Bogang & Hwang, Won-Sik, 2012. "Financial Hurdles for Human Capital Accumulation: Revisiting the Galor-Zeira Model," MPRA Paper 46317, University Library of Munich, Germany.
    15. V. V. Chari & Patrick J. Kehoe & Ellen R. McGrattan, 1996. "The Poverty of Nations: A Quantitative Exploration," NBER Working Papers 5414, National Bureau of Economic Research, Inc.
    16. Pathberiya, Lasitha R.C., 2024. "Monetary policy rules and zero lower bound on nominal interest rates in a cost-channel economy," Economic Modelling, Elsevier, vol. 139(C).
    17. Kiatipong Ariyapruchya & Cheerapan O-lanthanasate & Chatsurang Karnchanasai, 2006. "Strengthening the Competitiveness of Thai Firms: What Needs to be Done?," Working Papers 2006-03, Monetary Policy Group, Bank of Thailand.
    18. Jakob B. Madsen* & Md. Rabiul Islam, 2012. "The Anatomy of the Asian Take-off," Institutions and Economies (formerly known as International Journal of Institutions and Economies), Faculty of Economics and Administration, University of Malaya, vol. 4(2), pages 1-24, July.
    19. Vinod Thomas, 2009. "Income Disparity and Growth," Global Journal of Emerging Market Economies, Emerging Markets Forum, vol. 1(1), pages 63-86, January.
    20. Murach, Michael & Wagner, Helmut & Kim, Jungsuk & Park, Donghyun, 2022. "Trajectories to high income: Comparing the growth dynamics in China, South Korea, and Japan with cointegrated VAR models," Structural Change and Economic Dynamics, Elsevier, vol. 62(C), pages 492-511.
    21. Chrysanthopoulou, Xakousti & Tsioutsios, Alexandros & Dimitriou, Dimitrios, 2023. "Is central bank news good news for loan interest rates volatility?," Economics Letters, Elsevier, vol. 233(C).

    More about this item

    Keywords

    ;
    ;
    ;
    ;

    JEL classification:

    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • D58 - Microeconomics - - General Equilibrium and Disequilibrium - - - Computable and Other Applied General Equilibrium Models

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:idn:journl:v:13:y:2011:i:4h:p:435-460. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Shinta Fitrianti or Jimmy Kathon (email available below). General contact details of provider: https://edirc.repec.org/data/bigovid.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.