Dealing With the Impact of Monetary Policy in the US after the GFC: Capital Flows to the SEACEN Economies and Indonesia's Policy Experience

Solikin Juhro and Reza Anglingkusumo ()
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Reza Anglingkusumo: Bank Indonesia

No WP/05/2020, Working Papers from Bank Indonesia

Abstract: This paper empirical shows that unconventional monetary policy (UMP) in the US after the global financial crisis (GFC) affects capital inflows to SEACEN economies. For open middle income SEACEN economies, such as Indonesia, capital flows volatility induced by the UMP in the US adds to the complexity of managing monetary policy trilemma (MPT). A recent hypothesis states that in post GFC, it is possible for monetary authority in an open emerging market economy to retain monetary policy sovereignty (MPS) if and only if capital flows is managed, directly or indirectly, regardless the degree of exchange rate flexibility. This paper contends that for the case of Indonesia, MPS remains feasible even without a direct capital control. This supports the argument that MPS depends more on the strength of the policy framework to address domestic policy objectives. We argue that the implementation of central bank policy mix by Bank Indonesia provides such strength.

Keywords: capital inflows; unconventional monetary policy; monetary policy trilemma (search for similar items in EconPapers)
JEL-codes: E22 F32 F36 F41 (search for similar items in EconPapers)
Pages: 55 pages
Date: 2020
New Economics Papers: this item is included in nep-ban, nep-isf, nep-mac, nep-mon, nep-opm and nep-sea
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http://publication-bi.org/repec/idn/wpaper/WP052020.pdf First version, 2020 (application/pdf)

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Persistent link: https://EconPapers.repec.org/RePEc:idn:wpaper:wp052020

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