IDEAS home Printed from https://ideas.repec.org/p/idn/wpaper/wp172013.html

The Monetary Policy Regime In Indonesia

Author

Listed:
  • Solikin M. Juhro

    (Bank Indonesia)

  • Miranda S. Goeltom

Abstract

The challenges encountered after the financial crises of 1997 98 and 2008 09 have revealed some valuable lessons with regard to monetary policy. In a small open economy, such as that of Indonesia, the multiple challenges facing monetary policy as a result of capital flow dynamics, amid inflationary pressures, suggest that the monetary authorities should employ multiple instruments. This paper shows that coordinated implementation of a policy instrument mix should ultimately be part of an important strategy for optimally managing the monetary policy trilemma in the current climate, which is fraught with widespread uncertainty. It also shows that a post-GFC monetary policy framework in Indonesia is, generally, characterized by "enhanced" ITF. in "enhanced: ITF, the policy framework continues to adhere to an inflation target as the overriding objective of monetary policy. The main characteristics of ITF will remain, namely, that the inflation target is announced publicly and that the monetary policy is forward-looking, transparent, and clearly accountable. However, the ITF is implemented in a more feasible manner, which means that Bank Indonesia must not only look at the inflation target merely in terms of policy formulation but also consider a number of other factors, including financial sector stability and the dynamics of capital flows and the exchange rate. Therefore, achievement of macroeconomic stability not only is tied to monetary stability (price stability) but also interacts with financial system stability.

Suggested Citation

  • Solikin M. Juhro & Miranda S. Goeltom, 2013. "The Monetary Policy Regime In Indonesia," Working Papers WP/17/2013, Bank Indonesia.
    • Handle: RePEc:idn:wpaper:wp172013
    as

    Download full text from publisher

    File URL: https://publication-bi.org/repec/idn/wpaper/WP172013.pdf
    File Function: First version, 2013
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Thomas I. Palley, 2009. "Rethinking the Economics of Capital Mobility and Capital Controls," Working Papers wp193, Political Economy Research Institute, University of Massachusetts at Amherst.
    2. Andrew Filardo & Hans Genberg, 2010. "Monetary Policy Strategies in the Asia and Pacific Region: What Way Forward?," ADBI Working Papers 195, Asian Development Bank Institute.
    3. Carmen M. Reinhart & Kenneth S. Rogoff, 2009. "The Aftermath of Financial Crises," American Economic Review, American Economic Association, vol. 99(2), pages 466-472, May.
    4. repec:idn:journl:v:13:y:2011:i:3e:p:1-28 is not listed on IDEAS
    5. Claudio Borio & Craig Furfine & Philip Lowe, 2001. "Procyclicality of the financial system and financial stability: issues and policy options," BIS Papers chapters, in: Bank for International Settlements (ed.), Marrying the macro- and micro-prudential dimensions of financial stability, volume 1, pages 1-57, Bank for International Settlements.
    6. Alan S. Blinder, 2010. "How Central Should the Central Bank Be?," Journal of Economic Literature, American Economic Association, vol. 48(1), pages 123-133, March.
    7. Alan S. Blinder, 2010. "How Central Should the Central Bank Be?," Journal of Economic Literature, American Economic Association, vol. 48(1), pages 123-133, March.
    8. Thomas I. Palley, 2009. "repensar a economia da mobilidade e dos controles de capital," Brazilian Journal of Political Economy, FGV EAESP, vol. 29(3), pages 15-34, July.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Solikin M. Juhro, 2014. "THE ROLE OF THE CENTRAL BANK IN PROMOTING SUSTAINABLE GROWTH: Perspectives on the Implementation of Flexible ITF in Indonesia," Working Papers WP/17/2014, Bank Indonesia.
    2. Hendy Sulistiowaty & Widi Agustin Srihanoki, 2017. "Statistical implications of evolving monetary policy: the case of Indonesia," IFC Bulletins chapters, in: Bank for International Settlements (ed.), Statistical implications of the new financial landscape, volume 43, Bank for International Settlements.
    3. Solikin M. Juhro & Paresh Kumar Narayan & Bernard Njindan Iyke, 2022. "Understanding monetary and fiscal policy rule interactions in Indonesia," Applied Economics, Taylor & Francis Journals, vol. 54(45), pages 5190-5208, September.
    4. repec:idn:journl:v:21:y:2019:i:3:p:1-20 is not listed on IDEAS
    5. Soedarmono, Wahyoe & Gunadi, Iman & Pambudi, Sudiro & Nurhayati, Tika, 2023. "Monetary policy, funding liquidity, and undisbursed loans in Indonesia: The bank lending channel revisited," Journal of Economics and Business, Elsevier, vol. 127(C).

    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. Alin OPREANA & Simona VINEREAN, 2015. "Analysis of the Economic Research Context after the Outbreak of the Economic Crisis of 2007-2009," Expert Journal of Economics, Sprint Investify, vol. 3(1), pages 77-92.
    2. Benjamin Born & Michael Ehrmann & Marcel Fratzscher, 2011. "How Should Central Banks Deal with a Financial Stability Objective? The Evolving Role of Communication as a Policy Instrument," Chapters, in: Sylvester Eijffinger & Donato Masciandaro (ed.), Handbook of Central Banking, Financial Regulation and Supervision, chapter 9, Edward Elgar Publishing.
    3. Masciandaro, Donato, 2022. "Independence, conservatism, and beyond: Monetary policy, central bank governance and central banker preferences (1981–2021)," Journal of International Money and Finance, Elsevier, vol. 122(C).
    4. Wahyoe Soedarmono & Romora Edward Sitorus, 2014. "The Number of Financial Regulatory Authorities and Financial Stability: Cross-Country Experiences," Bulletin of Monetary Economics and Banking, Bank Indonesia, vol. 17(1), pages 129-145, July.
    5. repec:jpe:journl:1307 is not listed on IDEAS
    6. Donato Masciandaro, 2018. "Central Banks And Macroprudential Policies: Economics And Politics," BAFFI CAREFIN Working Papers 1878, BAFFI CAREFIN, Centre for Applied Research on International Markets Banking Finance and Regulation, Universita' Bocconi, Milano, Italy.
    7. Canuto, Otaviano & Cavallari, Matheus, 2013. "Asset Prices, Macroprudential Regulation, and Monetary Policy," World Bank - Economic Premise, The World Bank, issue 116, pages 1-8, May.
    8. Kazi, Irfan Akbar & Wagan, Hakimzadi & Akbar, Farhan, 2013. "The changing international transmission of U.S. monetary policy shocks: Is there evidence of contagion effect on OECD countries," Economic Modelling, Elsevier, vol. 30(C), pages 90-116.
    9. Gogas, Periklis & Papadimitriou, Theophilos & Matthaiou, Maria-Artemis, 2016. "Bank supervision using the Threshold-Minimum Dominating Set," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 451(C), pages 23-35.
    10. Blinder, Alan S., 2010. "The Squam Lake Report: Fifteen economists in search of financial reform," Journal of Monetary Economics, Elsevier, vol. 57(7), pages 892-902, October.
    11. Nicu Sprincean, 2019. "Early Warning Indicators For Macrofinancial Activity In Romania," Review of Economic and Business Studies, Alexandru Ioan Cuza University, Faculty of Economics and Business Administration, issue 23, pages 137-162, June.
    12. Zafar Hayat, 2017. "Pakistan’s Monetary Policy: Some Fundamental Issues," The Pakistan Development Review, Pakistan Institute of Development Economics, vol. 56(1), pages 31-58.
    13. Doumpos, Michael & Gaganis, Chrysovalantis & Pasiouras, Fotios, 2015. "Central bank independence, financial supervision structure and bank soundness: An empirical analysis around the crisis," Journal of Banking & Finance, Elsevier, vol. 61(S1), pages 69-83.
    14. Ricardo Reis, 2013. "Central Bank Design," Journal of Economic Perspectives, American Economic Association, vol. 27(4), pages 17-44, Fall.
    15. Chris Hunt, 2009. "Banking crises in New Zealand - an historical perspective," Reserve Bank of New Zealand Bulletin, Reserve Bank of New Zealand, vol. 72, pages 26-41, December.
    16. Günes Kamber & Özer Karagedikli & Christie Smith, 2015. "Applying an Inflation-Targeting Lens to Macroprodential Policy "Institutions"," International Journal of Central Banking, International Journal of Central Banking, vol. 11(4), pages 395-429, September.
    17. Issing, Otmar, 2011. "Lessons for monetary policy: What should the consensus be?," CFS Working Paper Series 2011/13, Center for Financial Studies (CFS).
    18. Dalla Pellegrina, L. & Masciandaro, D. & Pansini, R.V., 2013. "The central banker as prudential supervisor: Does independence matter?," Journal of Financial Stability, Elsevier, vol. 9(3), pages 415-427.
    19. Irfan Akbar Kazi & Hakimzadi Wagan & Farhan Akbar, 2012. "The changing international transmission of US monetary policy shocks: is there evidence of contagion effect on OECD countries," Working Papers hal-04141067, HAL.
    20. Paul A Wachtel, 2011. "Central Banking for the 21st Century: An American Perspective," Chapters, in: Ewald Nowotny & Peter Mooslechner & Doris Ritzberger-Grünwald (ed.), Post-Crisis Growth and Integration in Europe, chapter 10, Edward Elgar Publishing.
    21. José Américo Pereira Antunes & Claudio Oliveira De Moraes & Gabriel Caldas Montes, 2016. "Bank Regulatory Capital, Risk-Taking Channel And Monetary Policy: Evidence From An Inflation Targeting Emerging Economy," Anais do XLIII Encontro Nacional de Economia [Proceedings of the 43rd Brazilian Economics Meeting] 042, ANPEC - Associação Nacional dos Centros de Pós-Graduação em Economia [Brazilian Association of Graduate Programs in Economics].

    More about this item

    Keywords

    ;
    ;
    ;
    ;

    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
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • E63 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Comparative or Joint Analysis of Fiscal and Monetary Policy; Stabilization; Treasury Policy

    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:wpaper:wp172013. 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.