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Bulletin of Indonesian Economic Studies
ISSN: 0007-4918 (Print) 1472-7234 (Online) Journal homepage: http://www.tandfonline.com/loi/cbie20
Regional Dimensions of Monetary Policy in
Indonesia
Masagus M. Ridhwan
To cite this article: Masagus M. Ridhwan (2013) Regional Dimensions of Monetary Policy in Indonesia, Bulletin of Indonesian Economic Studies, 49:3, 386-387, DOI: 10.1080/00074918.2013.850635
To link to this article: http://dx.doi.org/10.1080/00074918.2013.850635
Published online: 05 Dec 2013.
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386 Abstracts of doctoral theses on the Indonesian economy
disadvantaged by a scarcity of land and water resources. Improving credit and market access, for example, would encourage individuals to remain in rural areas, promote self-reliance, and increase both agricultural productivity and household incomes.
© 2013 Wildan Syaitri
http://dx.doi.org/10.1080/00074918.2013.850638
Regional Dimensions of Monetary Policy in Indonesia Masagus M. Ridhwan ([email protected])
Accepted 2011, VU University, Amsterdam
Monetary policy is structurally designed to achieve national targets, most notably price stability. Given that each economy has its own structure and characteris-tics, a uniform monetary policy across different regions may generate differential shocks and have distributional implications. This thesis examines the empirical
applications of monetary policy and other inancial factors on Indonesia’s eco -nomic development.
Its survey of the literature inds that the conventional view of previous studies
posits the neutrality of money – that is, that money functions only as a mirror of real (regional) economic activity. Given the existing regional differences in rates of return to capital investment, this view also asserts that such differences can be eliminated through interregional capital mobility and arbitrage mechanisms in
an integrated market. Yet such a view is rather simplistic, because regional inan -cial markets are not necessarily fully integrated. The literature points at imperfect
inancial integration arising from physical, cultural and institutional distances.
This thesis proposes a simple but effective way of conducting a meta-analysis on a type of literature, based on sources of regional heterogeneities in response to national monetary policy on economic activity across regions or countries within a monetary union. After controlling for differences in study characteristics and a
broad set of conditioning variables, this thesis inds that the differential output
effects following monetary-policy shocks are greater in regions with economies that rely to a greater degree on more capital-intensive industrial sectors, particu-larly manufacturing, than in regions with economies that rely more on agriculture and mining.
In its overview of Indonesia’s economy, this thesis pays speciic attention to regional development in the era of iscal decentralisation and the geographical
aspects of banking intermediary functions. It uses vector autoregression (VAR) models to examine the effects of monetary policy on the development of Indone-sia’s regional output, and it provides empirical evidence of the regional effects of
monetary policy. Its main indings are as follows: irst, that the output effects of the magnitude and timing of monetary-policy actions tend to luctuate, consistent
with theory, across Indonesia’s regions; and, second, that the impulse-response functions derived from the VAR models show that regional output generally falls in response to interest-rate shocks, particularly in the short run.
This study also determines the extent to which the interest rates of
Indone-sia’s local banks vary. It inds substantial differences across regions in regional
Abstracts of doctoral theses on the Indonesian economy 387
interest rates on loans – from rural and regional banks alike – which suggests that Indonesia’s bank-loan markets are segmented geographically. After controlling
for regional ixed effects, it reveals that variations in regional interest rates are
linked to variations in risk factors, administrative costs, economies of scale, and market concentration.
© 2013 Masagus M. Ridhwan
http://dx.doi.org/10.1080/00074918.2013.850635
