Monetary and macroprudential policies in the presence of external shocks: evidence from an emerging economy

Alexander Lubis, Constantinos Alexiou and Joseph G. Nellis

Journal of Economic Studies, 2021, vol. 49, issue 6, 960-977

Abstract: Purpose - This paper examines the impact of using the reserve requirements, combined with foreign exchange (FX) intervention, as key instruments in an inflation-targeting framework. Design/methodology/approach - In the context of a dynamic stochastic general equilibrium (DSGE) framework and using Bayesian techniques, the authors estimate a model for the Indonesian economy using quarterly data spanning the period 2005Q2–2019Q4. Findings - The reserve requirement is found to assume a complementary role to that of the interest rate policy and FX intervention when used to stabilise the macroeconomy. Originality/value - This paper provides a benchmark for other emerging countries that consider adopting the inflation targeting framework and impose an FX intervention as part of their monetary policy.

Keywords: Monetary policy; Macroprudential policy; Foreign exchange intervention; Reserve requirement; DSGE (search for similar items in EconPapers)
Date: 2021
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Persistent link: https://EconPapers.repec.org/RePEc:eme:jespps:jes-11-2020-0577

DOI: 10.1108/JES-11-2020-0577

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