Monetary Policy Model for Open Economy of Indonesia
Abstract
This paper explains stylized facts about the monetary economy in Indonesia covering the Bank Indonesia (BI) policy on the exchange rate, lending rates, inflation, real effective rate (REER), and growth. This is done to get an understanding on the impact of foreign policy (influenced by the Fed) on Indonesia’s monetary economy, with some attention to the fund rate. An empirical model of VAR (Vector Auto Regression) was developed to capture the impact of an increase in fund rate to Indonesia’s monetary sector. Furthermore, a theoretical model was developed to capture the result from empirical model. The theoretical model shows that the increase of fund rate influenced the increase of BI rate, lending rate, inflation, while reducing REER and growth.
Keyword: monetary policy, lending rate, inflation, exchange rate.
JEL Classification: E52, F41Downloads
References
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Buletin Ekonomi Moneter dan Perbankan / Bulletin of Monetary Economics and Banking is licensed under a Creative Commons Attribution-NonCommercial 4.0 International License.
