Open AccessMONETARY POLICY AND FINANCIAL CONDITIONS IN INDONESIA
Author(s) -
Bernard Njindan Iyke,
Solikin M. Juhro
Publication year - 2019
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.505
H-Index - 4
ISSN - 2460-9196
DOI - 10.21098/bemp.v21i3.1005
Subject(s) - financial crisis , indonesian , monetary policy , financial system , identification (biology) , economics , index (typography) , finance , business , monetary economics , macroeconomics , philosophy , botany , biology , world wide web , computer science , linguistics
We develop a financial condition index (FCI) and examine the effects of monetarypolicy on financial conditions in Indonesia. We show that our FCI tracks financialconditions quite well because it captures key financial events (the Asian financialcrisis of 1997–1998, the Indonesian banking crisis, and the global financial crisis andits aftermath). A unique feature of our FCI is that it is quarterly and thus offers nearreal-time development in financial conditions. We also show that monetary policyshapes the FCI. A contractionary monetary policy leads to unfavourable financialconditions during the first two quarters, followed by favourable financial conditionsfor nearly three quarters. This finding is robust to an alternative identification strategy.Our findings highlight the critical role of the monetary authority in shaping financialconditions in Indonesia.