The Regional Impact of Monetary Policy in Indonesia

Tinbergen Institute Discussion Paper No. 2011-081/3

29 Pages Posted: 24 May 2011

See all articles by Masagus M. Ridhwan

Masagus M. Ridhwan

VU University Amsterdam - Department of Spatial Economics

Henri L. F. de Groot

Vrije Universiteit Amsterdam; Tinbergen Institute

Piet Rietveld

VU University Amsterdam - Department of Spatial Economics (Deceased)

Peter Nijkamp

VU University of Amsterdam - Department of Spatial Economics; Tinbergen Institute

Date Written: May 16, 2011

Abstract

This paper employs Vector Autoregression (VAR) models to measure the impact of monetary policy shocks on regional output in Indonesia. Having incorporated a possible structural break following the aftermath of the 1997-98 Asian Crisis, the impulse response functions derived from the estimated models reveal substantial cross-region variations in policy responses in terms of their magnitude and timing. Our work complements the existing literature by providing insights from a developing country. The results support previous findings that the differential regional effects of monetary policy are significantly related to sectoral composition (especially the share of manufacturing), providing evidence for the relevance of the interest rate channel of monetary policy. We also find that firm-size contributes to the differences, providing evidence for the relevance of the credit channel.

Keywords: monetary policy transmission, regional development, vector autoregression

JEL Classification: E44, E52, R11, C32

Suggested Citation

Ridhwan, Masagus M. and de Groot, Henri L.F. and Rietveld, Piet and Nijkamp, Peter, The Regional Impact of Monetary Policy in Indonesia (May 16, 2011). Tinbergen Institute Discussion Paper No. 2011-081/3, Available at SSRN: https://ssrn.com/abstract=1844246 or http://dx.doi.org/10.2139/ssrn.1844246

Masagus M. Ridhwan (Contact Author)

VU University Amsterdam - Department of Spatial Economics ( email )

De Boelelaan 1105
1081HV Amsterdam
Netherlands

Henri L.F. De Groot

Vrije Universiteit Amsterdam ( email )

De Boelelaan 1105
Amsterdam, 1081 HV
Netherlands
0640494981 (Phone)
2135 DL (Fax)

Tinbergen Institute

Gustav Mahlerplein 17
Amsterdam, 1082 MS
Netherlands

Piet Rietveld

VU University Amsterdam - Department of Spatial Economics (Deceased)

De Boelelaan 1105
1081HV Amsterdam
Netherlands
+31 20 4446097 (Phone)
+31 20 4446004 (Fax)

Peter Nijkamp

VU University of Amsterdam - Department of Spatial Economics ( email )

De Boelelaan 1105
1081HV Amsterdam
Netherlands
+31 20 4446091 (Phone)
+31 20 4445611 (Fax)

Tinbergen Institute

Gustav Mahlerplein 117
Amsterdam, 1082 MS
Netherlands

Do you have negative results from your research you’d like to share?

Paper statistics

Downloads
235
Abstract Views
1,437
Rank
236,407
PlumX Metrics