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Inflation Targeting under Imperfect Credibility Based on the Aggregate Rational Inflation-Targeting Model for Bank Indonesia (ARIMBI): Lessons from the Indonesian Experience

  • Harmanta, M. Barik Bathaluddin
  • Jati Waluyo
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    Credibility is one of the central issues in conducting monetary policy. It is necessary in order to anchor the economic agents’ expectation on the central bank’s inflation target. A central bank which is capable of managing the public’s expectation of inflation in a proper manner would able to implement monetary policy more effectively and efficiently. This paper attempts to assess the role of credibility in the implementation of the inflation targeting framework in Indonesia. It illustrates how credibility may play an important role in the evolution of the Indonesian monetary policy. Knowing the degree of credibility would be beneficial for Bank Indonesia (BI) in understanding how policy instruments can be adjusted to achieve a long-term inflation target.

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    File URL: http://www.seacen.org/GUI/pdf/publications/occasional/2010/occ50/occ50.pdf
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    This book is provided by South East Asian Central Banks (SEACEN) Research and Training Centre in its series Occasional Papers with number occ50 and published in 2010.
    ISBN: -
    Handle: RePEc:sea:opaper:occ50
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    1. Svensson, L.E.O., 1993. "The Simplest Test of Inflation Target Credibility," Papers 560, Stockholm - International Economic Studies.
    2. Stanley Fischer, 1986. "Contracts, Credibility, and Disinflation," NBER Working Papers 1339, National Bureau of Economic Research, Inc.
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