Towards improved monetary policy in Indonesia
Date
2003
Authors
McLeod, Ross
Journal Title
Journal ISSN
Volume Title
Publisher
Routledge, Taylor & Francis Group
Abstract
Indonesia's depreciation vastly exceeded that of all other countries hit by the Asian crisis. Indonesia also experienced far higher inflation. This paper argues that there is a close medium to long-term relationship between money growth and inflation in Indonesia, and that this has not been greatly disturbed by the crisis. It argues that the country's disappointing performance in relation to maintaining the value of the rupiah can be explained by the central bank's failure to sterilise the monetary impact on base money of its last-resort lending to the banks. The fundamental lesson is that Bank Indonesia would be well advised to adopt slow and steady growth of base money as the nominal anchor for monetary policy, now that the pre-crisis policy of slow and steady depreciation of the rupiah has been abandoned.
Description
Keywords
Keywords: central bank; currency market; inflation; lending behavior; monetary policy; Asia; Eurasia; Indonesia; Southeast Asia
Citation
Collections
Source
Bulletin of Indonesian Economic Studies
Type
Journal article