Masagus M. Ridhwan is a Senior Economist at the Bank Indonesia, Jakarta, Indonesia. His e-mail address is: email@example.com. Henri L.F. de Groot is a Professor in Regional Economic Dynamics at the Department of Spatial Economics, VU University Amsterdam, Amsterdam, The Netherlands. His e-mail address is: firstname.lastname@example.org. Piet Rietveld was a Professor in Transport Economics and Head of the Department of Spatial Economics, VU University Amsterdam, Amsterdam, The Netherlands. Peter Nijkamp is a Professor in Regional Economics at the Department of Spatial Economics, VU University Amsterdam, Amsterdam, The Netherlands. His e-mail address is: email@example.com. Masagus Ridhwan, Henri de Groot and Peter Nijkamp would like to dedicate this paper to Piet Rietveld who sadly passed away in the proofreading phase of this paper on November 1, 2013.
The Regional Impact of Monetary Policy in Indonesia
Article first published online: 3 MAR 2014
© 2014 Wiley Periodicals, Inc
Growth and Change
Volume 45, Issue 2, pages 240–262, June 2014
How to Cite
Ridhwan, M. M., de Groot, H. L. F., Rietveld, P. and Nijkamp, P. (2014), The Regional Impact of Monetary Policy in Indonesia. Growth and Change, 45: 240–262. doi: 10.1111/grow.12045
- Issue published online: 29 MAY 2014
- Article first published online: 3 MAR 2014
- Manuscript Accepted: JUN 2012
- Manuscript Revised: MAR 2012
- Manuscript Received: MAY 2011
This paper employs vector autoregressive (VAR) models to measure the impact of monetary policy shocks on regional output in Indonesia. We find substantial cross-regional variation in policy responses in terms of both magnitude as well as timing. Our work adds to the existing literature by providing insights from a large developing country, viz. Indonesia, where monetary policy has both a national and a regional dimension. 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 these differences, providing evidence for the importance of the credit channel. As a whole, both types of channels appear to operate simultaneously in the decentralized Indonesian monetary policy and to impact on the real part of the regional economy.