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Does Reforming the Benchmark Policy Rate Really Work? The Analysis of Monetary Policy Transmission in Indonesia

In: Advances in Cross-Section Data Methods in Applied Economic Research

Author

Listed:
  • Ahmad Danu Prasetyo

    (Institut Teknologi Bandung)

Abstract

We conduct a VAR model to analyze the effectiveness of transmission of monetary policy aftermath the implementation of the new policy rate in Indonesia. We include variables that proxy five channels of the monetary policy transmission, i.e., the inflation, the exchange rate, the asset price, and the credit channel. The result of the study shows that the change of the monetary policy regime does make an impact through the transmission channels. Furthermore, the impulse of the intertemporal gap of policy rate would increase the government bond yield, expected inflation, and investment credit rate in the short term. On the opposite, it will depreciate the stock index and the domestic exchange rates. However, the response of the impulse will be diminished over the long-term period; except for investment credit rate, the impulse will persist for the long term.

Suggested Citation

  • Ahmad Danu Prasetyo, 2020. "Does Reforming the Benchmark Policy Rate Really Work? The Analysis of Monetary Policy Transmission in Indonesia," Springer Proceedings in Business and Economics, in: Nicholas Tsounis & Aspasia Vlachvei (ed.), Advances in Cross-Section Data Methods in Applied Economic Research, chapter 0, pages 275-289, Springer.
    • Handle: RePEc:spr:prbchp:978-3-030-38253-7_18
    DOI: 10.1007/978-3-030-38253-7_18
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