Risk appetite and foreign exchange intervention in an inflation-targeting framework: the case of Indonesia
Date published
2023-03-31
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Journal Title
Journal ISSN
Volume Title
Publisher
Bank of Indonesia
Department
Type
Article
ISSN
1410-8046
Format
Citation
Lubis A, Alexiou C, Nellis JG. (2023) Risk appetite and foreign exchange intervention in an inflation-targeting framework: the case of Indonesia, Bulletin of Monetary Economics and Banking. Volume 26, Issue 1, March 2023, Article number 8
Abstract
The use of foreign exchange intervention in an inflation-targeting framework raises the question regarding its role. In addition, in an environment of volatile capital flows, how the risk appetite of foreign investors might impact the economy is worth exploring. This paper examines these issues for Indonesia by developing and estimating a dynamic stochastic general equilibrium model. This study finds that the foreign exchange intervention affects the macroeconomic variables through the portfolio channel. The risk appetite also affects the economy by increasing the price of capital. The foreign exchange intervention helps in stabilizing the economy during the presence of risk appetite shocks and monetary policy shocks.
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Software Description
Software Language
Github
Keywords
monetary policy, foreign exchange intervention, DSGE
DOI
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Attribution-NonCommercial 4.0 International