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The Regional Impact of Monetary Policy in Indonesia

Masagus M. Ridhwan, Henri de Groot (), Piet Rietveld and Peter Nijkamp
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Masagus M. Ridhwan: VU University Amsterdam, and Bank Indonesia

No 11-081/3, Tinbergen Institute Discussion Papers from Tinbergen Institute

Abstract: This discussion paper led to an article in Growth and Change (2014). Volume 45, issue 2, pages 240-262. This paper employs Vector Autoregression (VAR) models to measure the impact of monetary policy shocks on regional output in Indonesia. Having incorporated a possible structural break following the aftermath of the 1997-98 Asian Crisis, the impulse response functions derived from the estimated models reveal substantial cross-region variations in policy responses in terms of their magnitude and timing. Our work complements the existing literature by providing insights from a developing country. The results support previous findings that the differential regional effects of monetary policy are significantly related to sectoral composition (especially the share of manufacturing), providing evidence for the relevance of the interest rate channel of monetary policy. We also find that firm-size contributes to the differences, providing evidence for the relevance of the credit channel.

Keywords: monetary policy transmission; regional development; vector autoregression (search for similar items in EconPapers)
JEL-codes: E44 E52 R11 C32 (search for similar items in EconPapers)
Date: 2011-05-16
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