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Towards Improved Monetary Policy in Indonesia: Response to De Brouwer

  • Ross H. McLeod


This paper presents a number of responses to Gordon de Brouwer's criticisms of my paper on monetary policy in Indonesia. Among other things, it argues that de Brouwer has failed to disentangle the impact of two exogenous disturbances on prices - and relative prices - during the crisis and post-crisis period. These disturbances were capital flight, which resulted in real depreciation of the rupiah, and rapid growth of base money, which resulted in inflation. Thus all prices rose, but tradables prices rose more than those of non-tradables. The paper also shows that the kind of monetary policy that de Brouwer criticises, which I describe here as active monetary policy, or fine-tuning, is quite different from the one I proposed in my paper - namely passive monetary policy, the settings of which are changed infrequently, if at all. Other misstatements of my arguments and views are also discussed.

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Paper provided by The Australian National University, Arndt-Corden Department of Economics in its series Departmental Working Papers with number 2004-01.

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Date of creation: Jan 2004
Date of revision:
Handle: RePEc:pas:papers:2004-01
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  1. Halim Alamsyah & Charles Joseph & Juda Agung & Doddy Zulverdy, 2001. "Towards Implementation Of Inflation Targeting In Indonesia," Bulletin of Indonesian Economic Studies, Taylor & Francis Journals, vol. 37(3), pages 309-324.
  2. Ross McLeod, 2002. "Toward Improved Monetary Policy in Indonesia," Departmental Working Papers 2002-10, The Australian National University, Arndt-Corden Department of Economics.
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