Regional economic structure and heterogeneous effects of monetary policy: evidence from Indonesian provinces

Harry Aginta () and Masakazu Someya ()
Additional contact information
Harry Aginta: Nagoya University
Masakazu Someya: Nagoya University

Journal of Economic Structures, 2022, vol. 11, issue 1, 1-25

Abstract: Abstract We analyze how regional economic structures affect the impact of monetary policy on rates of inflation across 34 Indonesian provinces. The paper first applies structural factor augmented vector autoregressive model (SFAVAR) to all the 34 provinces based on monthly provincial data in order to measure the length and magnitude of responses of regional inflation to monetary policy shock, derived from the consequential impulse response functions of 34 provinces. In the second step, we analyze the impact of economic structures on the length and magnitude of regional inflationary responses of 34 provinces. We find that the impacts of monetary policy across regions are significantly influenced by economic structural variables such as manufacturing sector share to GDP, mining sector share to GDP, bank lending share to GDP and export share to GDP. In addition, we found the spatial lag, rate of inflation of neighboring provinces, is also statistically significant. In a similar fashion, economic structural variables such as manufacturing sector share to GDP, construction sector share to GDP and investment share to GDP are found statistically significant in explaining regional differences of monetary policy efficiency. Our findings imply economic structures of provinces have to be incorporated to designing monetary policy in Indonesia.

Keywords: Monetary policy transmission; Economic structure; Inflation; Indonesia; E52; R11 (search for similar items in EconPapers)
JEL-codes: E52 R11 (search for similar items in EconPapers)
Date: 2022
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (5)

Downloads: (external link)
http://link.springer.com/10.1186/s40008-021-00260-6 Abstract (text/html)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:spr:jecstr:v:11:y:2022:i:1:d:10.1186_s40008-021-00260-6

Ordering information: This journal article can be ordered from
http://www.springer.com/economics/journal/40008

DOI: 10.1186/s40008-021-00260-6

Access Statistics for this article

Journal of Economic Structures is currently edited by Shigemi Kagawa and Kazuhiko Nishimura

More articles in Journal of Economic Structures from Springer, Pan-Pacific Association of Input-Output Studies (PAPAIOS) Contact information at EDIRC.
Bibliographic data for series maintained by Sonal Shukla () and Springer Nature Abstracting and Indexing ().