EconPapers    
Economics at your fingertips  
 

Observed inflation-target adjustments in an estimated DSGE model for Indonesia: Do they matter for aggregate fluctuations?

Denny Lie ()

No 2018-01, Working Papers from University of Sydney, School of Economics

Abstract: This paper investigates the role of observed offcial inflation-target adjustments in aggregate macroeconomic fluctuations in Indonesia, using an estimated Dynamic Sto- chastic General Equilibrium (DSGE) model. The paper finds that these adjustments or shocks play a non-trivial role in the fluctuations of inflation and nominal interest rate in Indonesia. Output fluctuations, however, are virtually unaffected. A counter- factual exercise shows that a gradual reduction in Bank Indonesia's inflation target may have not been optimal. The paper also provides additional insights on the con- tribution of various shocks in driving aggregate fluctuations in Indonesia. Technology and monetary-policy shocks are found to be the main driving factor for both output and inflation fluctuations. Movements in the nominal interest rate are mostly driven by preference and risk-premium shocks, with inflation-target shocks playing a larger role in the longer run. The inclusion of inflation-target shocks in the model is also shown to improve the model's fit and out-of-sample predictive performance..

Keywords: Inflation target; inflation-target adjustments or shocks; DSGE model for Indonesia; source of aggregate fluctuations; Bank Indonesia (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cba, nep-dge, nep-mac, nep-mon and nep-sea
Date: 2018-06
References: View references in EconPapers View complete reference list from CitEc
Citations: Track citations by RSS feed

Downloads: (external link)
http://econ-wpseries.com/2018/201801.pdf

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:syd:wpaper:2018-01

Access Statistics for this paper

More papers in Working Papers from University of Sydney, School of Economics Contact information at EDIRC.
Bibliographic data for series maintained by Vanessa Holcombe ().

 
Page updated 2019-12-05
Handle: RePEc:syd:wpaper:2018-01