Monetary policy in emerging markets: The case of Indonesia
This chapter discusses the Indonesian experience with inflation targeting (IT). The author emphasises rapid structural changes in post‐crisis Indonesia as an important feature of the country's monetary regime. The need to deal with fiscal dominance and relatively shallow financial markets are additional important challenges for the monetary authorities, especially against a backdrop of exchange‐rate volatility and sudden shifts in capital inflows. The author argues that, due to these characteristics of the Indonesian regime, policy co‐ordination between the monetary authorities and the government at large needs to be enhanced. This co‐ordination is particularly important to minimise the inflationary pressures associated with a large share of administered prices (which are set by the government) in the consumer price index and volatile food prices.
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Document Type: Review Article
Publication date: April 1, 2008