Exit Policy, Liquidity Normalization, and lts Implications on Central Bank Policy Transmission

Authors

Alexander Lubis, Bank Indonesia, IndonesiaFollow
Rangga Pratama, Bank Indonesia, IndonesiaFollow
Merlin Dwi Yunaniar, Bank Indonesia, IndonesiaFollow
Wahyu Agung Nugroho, Bank IndonesiaFollow
Dian Prima Susiandri, Bank IndonesiaFollow

Document Type

Article

Abstract

The objective of this study is to determine the implications for the effectiveness of monetary policy transmission by examining the impact of specific policy toolkits in both Advanced Economy (AE) and Emerging Market (EM) countries during crises and during normalization (exit policy) upon crisis resolution. The analysis conducted using the VECM method on a number of AE and EM countries demonstrates that the response of bank interest rates (credit) is consistent with changes in policy rates and substantially diverges from Quantitative Easing (QE) policy in both the short and long term. However, the efficacy of monetary policy transmission appears to be diminishing following multiple crisis periods, including the Global Financial Crisis (GFC) and the COVID-19 pandemic. Furthermore, the efficacy of monetary policy transmission is higher in countries that first normalize liquidity than in those that directly increase policy rates, particularly in the aftermath of the COVID-19 pandemic.

Recommended Citation

Lubis, Alexander; Pratama, Rangga; Yunaniar, Merlin Dwi; Nugroho, Wahyu Agung; and Susiandri, Dian Prima (2025) "Exit Policy, Liquidity Normalization, and lts Implications on Central Bank Policy Transmission," Bulletin of Monetary Economics and Banking: Vol. 28: No. 1, Article 5.
DOI: https://doi.org/10.59091/2460-9196.2360
Available at: https://bulletin.bmeb-bi.org/bmeb/vol28/iss1/5

First Page

85

Last Page

116

Creative Commons License

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

Country

Indonesia

Affiliation

Bank Indonesia