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RESPON KEBIJAKAN MONETER YANG OPTIMAL DI INDONESIA: The State-Contingent Rule?

Author

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  • Solikin M. Juhro

    (Bank Indonesia)

Abstract

By developing a long-run macro structural model, the structural Cointegrating Vector Autoregression (VAR), the optimality principle of monetary policy response in Indonesia is formulated. It accommodates not only long-run policy response and short-run dynamic error-correction mechanism, but also specific shocks emerged due to structural changes in the economy. In that context, the generated policy response basically reflects the optimal response of a state-contingent rule, different from common simple policy rules, such as Taylor rule and McCallum rule. This study captures several important aspects related to the implementation of state-contingent rule as an optimal monetary policy in Indonesia, namely: (i) the superiority of interest rate as a policy variable, or an operational target, against monetary base, (ii) the identification of monetary policy lag which is estimated averagely one-and-a half year, and (iii) the sub optimality of central bank monetary policy response, attributed by an over tight or loose policy response.

Suggested Citation

  • Solikin M. Juhro, 2008. "RESPON KEBIJAKAN MONETER YANG OPTIMAL DI INDONESIA: The State-Contingent Rule?," Bulletin of Monetary Economics and Banking, Bank Indonesia, vol. 10(4), pages 303-336, April.
    • Handle: RePEc:idn:journl:v:10:y:2008:i:4a:p:303-336
    DOI: https://doi.org/10.21098/bemp.v10i4.229
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    Keywords

    Kebijakan Moneter di Indonesia; Respon Kebijakan Moneter; Structural Cointegration Vector Autoregression (VAR);
    All these keywords.

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy

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