Monetary Reaction Function in Indonesia During Inflation Targeting Period

Authors

Aloysius Deno Hervino, Faculty of Economics and Business, Atma Jaya Catholic University of Indonesia, Indonesia; Faculty of Economics and Business, Universitas Gadjah Mada, IndonesiaFollow
Insukindro Insukindro, Faculty of Economics and Business, Universitas Gadjah Mada, IndonesiaFollow
Amirullah Setya Hardi, Faculty of Economics and Business, Universitas Gadjah Mada, IndonesiaFollow
Sekar Utami Setiastuti, Faculty of Economics and Business, Universitas Gadjah Mada, IndonesiaFollow

Abstract

This study analyzes the monetary reaction function in Indonesia with shocks and the fear of floating phenomenon in the inflation targeting period using a new neoclassical synthesis approach. The unit root test result explains that all variables are stationary or "I(0)", and in the long run, interest rates respond positively to future inflationary (counter-cyclical). Using a predictive performance model, the short-run FLM was chosen to explain the effect of triple shocks on interest rates in Indonesia. In the short run, only fluctuations in world oil prices significantly affect interest rates (counter-cyclical policy). Furthermore, this research has not been able to prove the existence of the fear of the floating phenomenon in Indonesia.

First Page

74

Last Page

86

Recommended Citation

Hervino, Aloysius Deno; Insukindro, Insukindro; Hardi, Amirullah Setya; and Setiastuti, Sekar Utami (2025) "Monetary Reaction Function in Indonesia During Inflation Targeting Period," Jurnal Ekonomi dan Studi Pembangunan: Vol. 15: No. 1, Article 6.
Available at: https://citeus.um.ac.id/jesp/vol15/iss1/6