RISK APPETITE AND FOREIGN EXCHANGE INTERVENTION IN AN INFLATION-TARGETING FRAMEWORK: THE CASE OF INDONESIA

Authors

Alexander Lubis, Department of Economic and Monetary Policy, Bank Indonesia.Follow
Constantinos Alexiou, Cranfield University, United KingdomFollow
Joseph G. Nellis, Cranfield University, United KingdomFollow

Document Type

Article

Abstract

The use of foreign exchange intervention in an inflation-targeting framework raises the question regarding its role. In addition, in an environment of volatile capital flows, how the risk appetite of foreign investors might impact the economy is worth exploring. This paper examines these issues for Indonesia by developing and estimating a dynamic stochastic general equilibrium model. This study finds that the foreign exchange intervention affects the macroeconomic variables through the portfolio channel. The risk appetite also affects the economy by increasing the price of capital. The foreign exchange intervention helps in stabilizing the economy during the presence of risk appetite shocks and monetary policy shocks.

Recommended Citation

Lubis, Alexander; Alexiou, Constantinos; and Nellis, Joseph G. (2023) "RISK APPETITE AND FOREIGN EXCHANGE INTERVENTION IN AN INFLATION-TARGETING FRAMEWORK: THE CASE OF INDONESIA," Bulletin of Monetary Economics and Banking: Vol. 26: No. 1, Article 8.
DOI: https://doi.org/10.59091/1410-8046.2044
Available at: https://bulletin.bmeb-bi.org/bmeb/vol26/iss1/8

First Page

1

Last Page

38

Creative Commons License

This work is licensed under a Creative Commons Attribution-NonCommercial 4.0 International License

Country

United Kingdom

Affiliation

Cranfield University