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

Source

Bulletin of Indonesian Economic Studies

Type

Journal article

Book Title

Entity type

Access Statement

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