Understanding Monetary And Fiscal Policy Rule Interactions In Indonesia

Solikin Juhro, Paresh K. Narayan and Bernard N. Iyke
Additional contact information
Paresh K. Narayan: APAEA
Bernard N. Iyke: APAEA

No WP/01/2019, Working Papers from Bank Indonesia

Abstract: We examine the interaction of monetary and fiscal policies in Indonesia over a period of 1974Q2 to 2019Q1. Within a standard structural vector autoregression (SVAR) framework, we show that the reaction of the policy rules is quite consistent with theoretical predictions. For instance, a contractionary monetary policy is trailed by a contractionary fiscal policy of lower government expenditure. We extend the analysis to evaluate the interaction of the policy rules during active and passive regimes. We show that monetary and fiscal policies are not synchronized over the full sample period, suggesting presence of structural and institutional rigidities, particularly in the past. Restricting the sample to a recent time period, we find the policies to be harmonized to some extent owing to recent joint policy coordination initiatives by the monetary and fiscal authorities.

Keywords: Fiscal Policy; Monetary Policy; Policy Interactions; Indonesia (search for similar items in EconPapers)
JEL-codes: E61 E63 (search for similar items in EconPapers)
Pages: 28 pages
Date: 2019
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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http://publication-bi.org/repec/idn/wpaper/WP012019.pdf First version, 2019 (application/pdf)

Related works:
Journal Article: Understanding monetary and fiscal policy rule interactions in Indonesia (2022)
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