THE EFFECT OF MONETARY POLICY ON ECONOMIC STABILITY IN INDONESIA: A LITERATURE REVIEW
Keywords:
Monetary Policy, Economic Stability, Indonesia: Literature ReviewAbstract
Monetary policy plays a vital role in ensuring the stability of the economic system in Indonesia, where Bank Indonesia as the monetary authority has the main responsibility in setting interest rates and controlling the amount of money in circulation. The determination of interest rates by Bank Indonesia has a direct impact on consumption and investment activities. A decrease in interest rates generally encourages an increase in consumption and investment, which in turn can boost economic growth. However, interest rates that are too low over a long period of time may increase the risk of excessive inflation and financial system instability, as they may encourage excessive risk-taking by financial institutions and economic actors. Conversely, an overly tight monetary policy, with high interest rates, can hamper economic growth and increase unemployment, as high borrowing costs reduce consumption and investment spending. Firms may experience difficulties in financing operations and expansion, while consumers will be more cautious in their spending and investment. Therefore, it is important for Bank Indonesia to implement a balanced and flexible monetary policy, which is responsive to current economic conditions and various economic indicators. This balance in monetary policy is needed to ensure price stability, sustainable economic growth, and public welfare. Effective regulation and strict enforcement of supervision are also key in avoiding the negative impact of monetary policy that is either too loose or too tight. In conclusion, appropriate and measured monetary policy is an important instrument to achieve sustainable and inclusive stability of the Indonesian economic system.
References
Ajello, A., Boyarchenko, N., Gourio, F., & Tambalotti, A. (2022). Financial Stability Considerations for Monetary Policy: Theoretical Mechanisms. Query date: 2024-08-02 08:59:05. https://doi.org/10.21033/wp-2022-06
Akram, T., & Li, H. (2020). An analysis of the impact of the Bank of Japan's monetary policy on Japanese government bonds' low nominal yields. Unconventional Monetary Policy and Financial Stability, Query date: 2024-08-02 08:59:05, 88-109. https://doi.org/10.4324/9780429032479-7
Benchimol, J., & Bounader, L. (2023). Optimal monetary policy under bounded rationality. Journal of Financial Stability, 67 (Query date: 2024-08-02 08:59:05), 101151-101151. https://doi.org/10.1016/j.jfs.2023.101151
Booth, J. R., & Booth, L. C. (2020). Economic Factors, Monetary Policy, and Expected Returns on Stocks and Bonds. Handbook of Monetary Policy, Query date: 2024-08-02 08:59:05, 757-769. https://doi.org/10.4324/9780429270949-61
Boucekkine, R., Laksaci, M., & Touati-Tliba, M. (2021). Long-run stability of money demand and monetary policy: The case of Algeria. The Journal of Economic Asymmetries, 24 (Query date: 2024-08-02 08:59:05). https://doi.org/10.1016/j.jeca.2021.e00217
Burdekin, R. C. K., & Nguyen, Q. (2023). Daily monetary policy reactions to the pandemic: The Australian case. Economic Analysis and Policy, 78(Query date: 2024-08-02 08:59:05), 24-32. https://doi.org/10.1016/j.eap.2023.02.009
Cairó, I., & Sim, J. (2023). Monetary policy and financial stability. Journal of Economic Dynamics and Control, 157(Query date: 2024-08-02 08:59:05), 104764-104764. https://doi.org/10.1016/j.jedc.2023.104764
Cavallari, L. (2020). Monetary policy and consumers' demand. Economic Modeling, 92(Query date: 2024-08-02 08:59:05), 23-36. https://doi.org/10.1016/j.econmod.2020.06.022
Chen, W., & Phelan, G. (2023). Should monetary policy target financial stability? Review of Economic Dynamics, 49(Query date: 2024-08-02 08:59:05), 181-200. https://doi.org/10.1016/j.red.2022.08.002
Cheng, L., & Wu, C. (2024). Does the implementation of economic policies connected to climate change depend on monetary policy mandates and financial stability governance structures? Heliyon, Query date: 2024-08-02 08:59:05. https://doi.org/10.1016/j.heliyon.2024.e35294
Chojnowski, M. (2022). Monetary policy under continuous market sentiment regimes. Economic Tendency Surveys and Economic Policy - Measuring Output Gaps and Growth Potentials, Query date: 2024-08-02 08:59:05, 56-67. https://doi.org/10.18559/978-83-8211-129-3/4
Christiano, L. J., & Fitzgerald, T. J. (2020). Price Stability. Handbook of Monetary Policy, Query date: 2024-08-02 08:59:05, 405-410. https://doi.org/10.4324/9780429270949-32
Danylyshyn, B., & Bohdan, I. (2022). Monetary policy during the wartime: How to ensure macroeconomic stability. Investment Management and Financial Innovations, 19(2), 344-359. https://doi.org/10.21511/imfi.19(2).2022.30
Das, S., & Song, W. (2023). Monetary policy transmission and policy coordination in China. China Economic Review, 82(Query date: 2024-08-02 08:59:05), 102032-102032. https://doi.org/10.1016/j.chieco.2023.102032
Dierks, L. H. (2023). Monetary Policy and Stagflation: A trade-off between price stability and economic growth? Journal of New Finance, 2(3). https://doi.org/10.46671/2521-2486.1031
Dritsaki, M., & Dritsaki, C. (2022). Long-Run Stability of Money Demand and Monetary Policy: The Case of South Korea. Asian Economic and Financial Review, 12(5), 296-316. https://doi.org/10.55493/5002.v12i5.4482
Elster, J. (2020). Social Norms and Economic Theory. Handbook of Monetary Policy, Query date: 2024-08-02 08:59:05, 117-133. https://doi.org/10.4324/9780429270949-6
English, W. B. (2022). Monetary Policy and Financial Stability. Handbook of Financial Stress Testing, Query date: 2024-08-02 08:59:05, 410-430. https://doi.org/10.1017/9781108903011.027
Faux, E. (2022). Effects of Monetary Policy Transmission on Economic Growth in Sierra Leone. Monetary and Financial Systems in Africa, Query date: 2024-08-02 08:59:05, 81-93. https://doi.org/10.1007/978-3-030-96225-8_4
Firman, F.-. (2018). QUALITATIVE AND QUANTITATIVE RESEARCH. Query date: 2024-05-25 20:59:55. https://doi.org/10.31227/osf.io/4nq5e
Frayyeh, J. S., Battal, A. H., & Hamad, A. A. (2022). Evaluation of the role of monetary policy in achieving monetary and economic stability in Iraq for the period (2004-2020). Tikrit Journal of Administrative and Economic Sciences, 18(58), 304-328. https://doi.org/10.25130/tjaes.18.58.1.17
Ginn, W., & Pourroy, M. (2022). The contribution of food subsidy policy to monetary policy in India. Economic Modeling, 113(Query date: 2024-08-02 08:59:05), 105904-105904. https://doi.org/10.1016/j.econmod.2022.105904
Gomes, J. F., & Sarkisyan, S. (2023). Monetary Policy and Financial Stability. SSRN Electronic Journal, Query date: 2024-08-02 08:59:05. https://doi.org/10.2139/ssrn.4393209
Gupta, S. (2024). Inefficient shocks and optimal monetary policy. Economic Modeling, 135 (Query date: 2024-08-02 08:59:05), 106720-106720. https://doi.org/10.1016/j.econmod.2024.106720
Hasui, K. (2020). Monetary Policy Inertia, Macroprudential Policy, and Financial Stability in a Liquidity Trap. SSRN Electronic Journal, Query date: 2024-08-02 08:59:05. https://doi.org/10.2139/ssrn.3713574
Hirose, Y., Kurozumi, T., & Zandweghe, W. V. (2020). Monetary policy and macroeconomic stability revisited. Review of Economic Dynamics, 37(Query date: 2024-08-02 08:59:05), 255-274. https://doi.org/10.1016/j.red.2020.03.001
Hodson, D. (2020). 7. Economic and Monetary Union. Policy-Making in the European Union, Query date: 2024-08-02 08:59:05, 152-181. https://doi.org/10.1093/hepl/9780198807605.003.0007
Hossain, A. A. (2023). Monetary policy for price stability. Reference Module in Social Sciences, Query date: 2024-08-02 08:59:05. https://doi.org/10.1016/b978-0-44-313776-1.00185-9
Iddrisu, A.-A., & Alagidede, I. P. (2022). Monetary Policy and Price Stability in Ghana's Fourth Republic: Have the Dues Been Paid? Monetary and Financial Systems in Africa, Query date: 2024-08-02 08:59:05, 43-62. https://doi.org/10.1007/978-3-030-96225-8_2
Jelahut, F. E. (2022). Various Theories and Types of Qualitative Research. Query date: 2024-05-25 20:59:55. https://doi.org/10.31219/osf.io/ymzqp
Katsu, E. (2020). Quantitative and qualitative monetary easing, negative interest rates and the stability of the financial system in Japan. Unconventional Monetary Policy and Financial Stability, Query date: 2024-08-02 08:59:05, 164-193. https://doi.org/10.4324/9780429032479-10
Kawamoto, T., Nakazawa, T., Kishaba, Y., Matsumura, K., & Nakajima, J. (2023). Estimating the macroeconomic effects of Japan's expansionary monetary policy under Quantitative and Qualitative Monetary Easing during 2013-2020. Economic Analysis and Policy, 78(Query date: 2024-08-02 08:59:05), 208-224. https://doi.org/10.1016/j.eap.2023.03.007
Khattab, Y. E. (2024). Monetary policy challenges in Morocco: Exploring the possibility of reconciling price stability and economic growth. Revistamultidisciplinar.Com, 6(1), 5-16. https://doi.org/10.23882/rmd.24191
Laeven, L. A., Maddaloni, A., & Mendicino, C. (2022). Monetary Policy, Macroprudential Policy and Financial Stability. SSRN Electronic Journal, Query date: 2024-08-02 08:59:05. https://doi.org/10.2139/ssrn.4043288
Lee, S., & Park, J. (2022). Identifying monetary policy shocks using economic forecasts in Korea. Economic Modeling, 111(Query date: 2024-08-02 08:59:05), 105803-105803. https://doi.org/10.1016/j.econmod.2022.105803
Liu, W. (2023). Economic Growth, Market-Oriented Reform, and Monetary Policy in China. Research on China's Monetary Policy System and Conduction Mechanism, Query date: 2024-08-02 08:59:05, 1-20. https://doi.org/10.1007/978-981-19-9060-1_1
Markakis, M. (2020). Judicial Review of Economic (and Monetary) Policy: The National Courts. Accountability in the Economic and Monetary Union, Query date: 2024-08-02 08:59:05, 245-285. https://doi.org/10.1093/oso/9780198845263.003.0007
Morales, J. A., & Reding, P. (2021). Monetary Policy Trade-Offs and Monetary Policy Credibility. Monetary Policy in Low Financial Development Countries, Query date: 2024-08-02 08:59:05, 145-184. https://doi.org/10.1093/oso/9780198854715.003.0004
Novoszáth, P. (2022). Economic and Monetary Policy in Albania. Foreign Policy Review, 15(1), 89-124. https://doi.org/10.47706/kkifpr.2022.1.89-124
Omodero, C. O., & Okafor, M. C. (2020). Monetary Policy Mechanisms and Economic Growth Stability in Nigeria. Research in World Economy, 11(6), 225-225. https://doi.org/10.5430/rwe.v11n6p225
oorkolil, vijimon. (2024). The Ceiling Rate Policy: Redefining Monetary Stability and Consumer Protection in Modern Economies. Query date: 2024-08-02 08:59:05. https://doi.org/10.2139/ssrn.4903160
Othmani, A. (2023). Does economic policy uncertainty affect monetary policy and election's governance in the United States? Query date: 2024-08-02 08:59:05. https://doi.org/10.21203/rs.3.rs-2832073/v1
Purificato, F., & Sapienza, E. (2022). Monetary policy and financial stability in the Economic and Monetary Union. Classical Economics, Keynes and Money, Query date: 2024-08-02 08:59:05, 269-292. https://doi.org/10.4324/9781003105558-20
Satragno, L. (2022). Monetary Stability. Monetary Stability as a Common Concern in International Law, Query date: 2024-08-02 08:59:05, 36-58. https://doi.org/10.1163/9789004508736_004
Schneider, G. (2021). Monetary policy. Economic Principles and Problems, Query date: 2024-08-02 08:59:05, 785-805. https://doi.org/10.4324/9781315636924-40
Serletis, A., & Xu, L. (2020). Functional monetary aggregates, monetary policy, and business cycles. Journal of Economic Dynamics and Control, 121(Query date: 2024-08-02 08:59:05), 103994-103994. https://doi.org/10.1016/j.jedc.2020.103994
Simakov, K., & Fedorenko, K. (2020). Banking Interest and Discount Policy as a Tool for Monetary Regulation of Price Stability. Herald of the Economic Sciences of Ukraine, 2, 152-157. https://doi.org/10.37405/1729-720.2020.2(39).152-157
Sumithra, R. (2020). Monetary Policy Goals for Economic Stability in India. Shanlax International Journal of Economics, 8(2), 5-11. https://doi.org/10.34293/economics.v8i2.2155
Suyitno. (2021). QUALITATIVE RESEARCH METHODS CONCEPTS, PRINCIPLES AND OPERATIONS. Query date: 2024-05-25 20:59:55. https://doi.org/10.31219/osf.io/auqfr
Talahite, F. (2021). Monetary Policy in Algeria (1999-2019): Economic and Monetary Sovereignty in 21st Century Africa, Query date: 2024-08-02 08:59:05, 105-128. https://doi.org/10.2307/j.ctv244ssnb.8
Trehan, B. (2020). Economic Activity and Inflation. Handbook of Monetary Policy, Query date: 2024-08-02 08:59:05, 443-447. https://doi.org/10.4324/9780429270949-36
Tuori, K. (2020). Monetary Policy (objectives and instruments). The EU Law of Economic and Monetary Union, Query date: 2024-08-02 08:59:05, 615-698. https://doi.org/10.1093/oso/9780198793748.003.0027
Waheed, F., & Rashid, A. (2021). Credit frictions, fiscal imbalances, monetary policy autonomy, and monetary policy rules. The Journal of Economic Asymmetries, 23 (Query date: 2024-08-02 08:59:05). https://doi.org/10.1016/j.jeca.2020.e00192
Weiping, L. (2023). China's Strategic Choices for Monetary Policy and Economic Adjustment. American Monetary Policy Adjustment and Its Impacts, Query date: 2024-08-02 08:59:05, 279-324. https://doi.org/10.1007/978-981-99-7810-6_10
