Effects of Monetary Policy on the Real Economy: The Case of Indonesia

摘要

Monetary policy is expected to affect the real economy through transmission mechanism of selected channel in accordance to the changes in the global development of the domestic economy, such as credit channel, exchange rate channel, and asset price channel. The aim of this study wasto examine the effect of monetary policy on aggregate output and sectoral output of the Indonesian economy by using vector auto regression (VAR) model. Based on quarterly data covering the period of 2000.1 to 2014.4, we found that the effect of monetary policy surprise at the sectoral levelis heterogeneous. Some sectors are more sensitive and some others are less susceptible to monetary policy surprise. In order to achieve the desired objectives of monetary policy, we showed that there is a need of certain monetary policy to some sectors which are more focused in Indonesia.Indonesia’s economic growth and effect of monetary policy through transmission mechanism also need to be seen from expectation channel.