Citation:
Lubis A, Alexiou C, Nellis JG. (2022) Monetary and macroprudential policies in the presence of external shocks: evidence from an emerging economy. Journal of Economic Studies, Volume 49, Number 6, 24 August 2022, pp. 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.