Monetary Policy Model for Open Economy of Indonesia | Zendy

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Monetary Policy Model for Open Economy of Indonesia

Author(s) -

Umar Juoro

Publication year - 2014

Publication title -

deleted journal

Language(s) - English

Resource type - Journals

SCImago Journal Rank - 0.505

H-Index - 4

ISSN - 2460-9196

DOI - 10.21098/bemp.v16i1.438

Subject(s) - economics , monetary policy , stylized fact , exchange rate , monetary economics , inflation (cosmology) , inflation targeting , open economy , inflation rate , small open economy , interest rate , real interest rate , macroeconomics , physics , theoretical physics

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, F41

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