Template-Type: ReDIF-Paper 1.0 Series: Tinbergen Institute Discussion Papers Creation-Date: 2011-05-16 Number: 11-081/3 Author-Name: Masagus M. Ridhwan Author-Workplace-Name: VU University Amsterdam, and Bank Indonesia Author-Name: Henri L.F. de Groot Author-Workplace-Name: VU University Amsterdam Author-Name: Piet Rietveld Author-Workplace-Name: VU University Amsterdam Author-Name: Peter Nijkamp Author-Workplace-Name: VU University Amsterdam Title: The Regional Impact of Monetary Policy in Indonesia 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. Classification-JEL: E44, E52, R11, C32 Keywords: monetary policy transmission, regional development, vector autoregression File-Url: http://papers.tinbergen.nl/11081.pdf File-Format: application/pdf File-Size: 808078 bytes Handle: RePEc:tin:wpaper:20110081