Inflation, Financial Market, and Economic Policy: A Review Essay and lessons for Indonesia’s Economy

Dhaniel Ilyas
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Dhaniel Ilyas: Researcher, the Institute for Economic and Social Research, Faculty of Economics University of Indonesia (LPEM-FEUI)

Economics and Finance in Indonesia, 2008, vol. 56, 157-178

Abstract: This paper reviews several recent (influential) works on Inflation, Financial market, and Economic Policy. The works largely incorporated bounded rationality in their works and are in favor of adaptive learning behavior rather than using the rational expectation hypothesis. It is shown that the results can explain economic phenomena remarkably well. The positive feedback traders, speculation activities with common forecast rule can create bubbles that worsen economic crises into a deepening series. Also the mix of ‘classical’(orthodox) policy prescription by reducing the deficit and the need for seigniorage and ‘heterodox’ policy with exchange rate rule could work well in the short run and in the long run for reducing inflation. These insights fit quite well in the case of Indonesia’s economic crisis but some notes need to be addressed

Keywords: Inflation; Financial Market; Government Policy; Indonesia (search for similar items in EconPapers)
JEL-codes: E31 E44 G18 (search for similar items in EconPapers)
Date: 2008
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Persistent link: https://EconPapers.repec.org/RePEc:lpe:efijnl:200809

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