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Effectiveness of monetary policy transmission in Indonesia

Author

Listed:
  • Muhammad Khoirul Fuddin

    (Department of Economics, Universitas Muhammadiyah Malang, Malang, Indonesia)

Abstract

This study discusses the channel of monetary policy transmission mechanism of money, credit, interest rate and exchange rate in Indonesia. The effectiveness of the transmission mechanism of monetary policy in Indonesia can be described and explained by the ultimate target object in Indonesia, specifically economic growth and inflation. The analytical tool used in this study is Vector Error Correction Model (VECM) which uses impulse response and variance decomposition in determining the effectiveness of monetary policy transmission mechanism. The results explain that the credit channel is considered effective in explaining economic growth and the interest rate channel is effective in explaining inflation found in Indonesia.

Suggested Citation

  • Muhammad Khoirul Fuddin, 2014. "Effectiveness of monetary policy transmission in Indonesia," Economic Journal of Emerging Markets, Universitas Islam Indonesia, vol. 6(2), pages 119-130, April.
    • Handle: RePEc:uii:journl:v:6:y:2014:i:2:p:119-130
    DOI: http://dx.doi.org/10.20885/ejem.vol6.iss2.art5
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    References listed on IDEAS

    as
    1. Miranda S Goeltom, 2008. "The transmission mechanisms of monetary policy in Indonesia," BIS Papers chapters, in: Bank for International Settlements (ed.), Transmission mechanisms for monetary policy in emerging market economies, volume 35, pages 309-332, Bank for International Settlements.
    2. Diwa C Guinigundo, 2008. "Transmission mechanism of monetary policy in the Philippines," BIS Papers chapters, in: Bank for International Settlements (ed.), Transmission mechanisms for monetary policy in emerging market economies, volume 35, pages 413-425, Bank for International Settlements.
    3. Wai Ching Poon, 2010. "Testing Transmission Mechanisms on Economic Growth in Malaysia," Monash Economics Working Papers 26-10, Monash University, Department of Economics.
    Full references (including those not matched with items on IDEAS)

    Citations

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    Cited by:

    1. Jaka Sriyana, 2018. "Inflationary effects of fiscal and monetary policies in Indonesia," Business and Economic Horizons (BEH), Prague Development Center, vol. 14(3), pages 674-688, June.
    2. Apanisile, Tolulope Olumuyiwa & Akinlo, Anthony Enisan, 2022. "Effectiveness of Monetary Policy Transmission Mechanism in an Implicit Inflation Targeting Regime: The Case of Nigeria," African Journal of Economic Review, African Journal of Economic Review, vol. 10(4), September.

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    More about this item

    Keywords

    policy transmission mechanism; monetary policy; Vector Error Correction Model;
    All these keywords.

    JEL classification:

    • E51 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Money Supply; Credit; Money Multipliers
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E53 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Deposit Insurance

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