The emergence of macroprudential policies, implemented by central banks as a means of promoting financial stability, has raised many questions regarding the interaction between monetary and macroprudential policies. Given the limited number of studies available, this paper sheds light on this issue by providing a critical and systematic review of the literature. To this end, we divide the theoretical and empirical studies into two broad channels of borrowers – consisting of the cost of funds and the collateral constraint – and financial intermediaries – consisting of risk‐taking and payment systems. In spite of the existing ambiguity surrounding coordination issues between monetary and macroprudential policies, it is argued that monetary policy alone is not sufficient to maintain macroeconomic and financial stability. Hence, macroprudential policies are needed to supplement monetary. In addition, we find that the role of the exchange rate is critical in the implementation of monetary and macroprudential policies in emerging markets, while volatile capital flows pose another challenge. In so far as how the arrangement of monetary and macroprudential policies varies across countries, key theoretical and policy implications have been identified.
This paper investigates the information transmission between off-shore and on-shore Rupiah currency markets Indonesian. We found the evidence of persistent volatility in all IDR/USD markets. Using EGARCH model on daily data for the period of 2008 - 2011, this paper provide several empirical conclusions.-First, the persistent volatility in all IDR/USD currency markets is evident. Second, the leverage effects are present in the rupiah exchange rates, indicating that IDR/USD markets have responded more to depreciation than appreciation, which is generally common in emerging market currencies. Third, the evidence of mean spillover are observed to be uni-directional; from NDF to both spot and forward rupiah markets. However, there are two ways return transmission between NDF and forward rate changes in the period of Europe crisis. Fourth, on the volatility, the spillover is only significant from NDF market to spot market for the entire period. However, in the time of crises, there is interdependence between volatility in offshore NDF and onshore spot rate changes, while information transmission is only valid from NDF to forward rate changes, not the other way around. Fifth, the negative spread of domestic interest rate may lead to depreciation pressure on the currency and positive spread may indicate the appreciation pressure.Keywords: Foreign Exchange, Non-Deliverable Forward, exchange rate, spillover, EGARCH.JEL Classification: F31, G13, C51
This paper investigates the information transmission between off-shore and on-shore Rupiah currency markets Indonesian. We found the evidence of persistent volatility in all IDR/USD markets. Using EGARCH model on daily data for the period of 2008 - 2011, this paper provide several empirical conclusions.-First, the persistent volatility in all IDR/USD currency markets is evident. Second, the leverage effects are present in the rupiah exchange rates, indicating that IDR/USD markets have responded more to depreciation than appreciation, which is generally common in emerging market currencies. Third, the evidence of mean spillover are observed to be uni-directional; from NDF to both spot and forward rupiah markets. However, there are two ways return transmission between NDF and forward rate changes in the period of Europe crisis. Fourth, on the volatility, the spillover is only significant from NDF market to spot market for the entire period. However, in the time of crises, there is interdependence between volatility in offshore NDF and onshore spot rate changes, while information transmission is only valid from NDF to forward rate changes, not the other way around. Fifth, the negative spread of domestic interest rate may lead to depreciation pressure on the currency and positive spread may indicate the appreciation pressure. Keywords: Foreign Exchange, Non-Deliverable Forward, exchange rate, spillover, EGARCH.JEL Classification: F31, G13, C51
This paper examines the effectiveness of the trilemma policy choice, in the presence of macroprudential policies in ten emerging market economies. We address this issue due to the extensive use of macroprudential policies to maintain financial stability in the aftermath of global financial crisis. Our overall findings suggest that adoption of macroprudential policies with monetary policy helps to maintain macroeconomic stability in 6 out of 10 cases, and with capital account openness being effective only in three cases. Our findings suggest that the emerging economies’ policymakers can optimize the effectiveness of trilemma policy choice by giving more weightage to macroprudential policies along with exchange rate stability and monetary policy.
The implementation of the ASEAN Economic Community (AEC) in 2015 required some form of monetary integration, such as exchange rate management. This paper investigates the role of the exchange rate on the inflation rate in Indonesia. Using the monthly data series from 1970 to 2015, we find that the nominal exchange rate affects the inflation rate at a low transmission speed rate. However, the exchange rate volatility and depreciation threshold may accelerate the speed of the exchange rate's transmission to inflation. Thus, studies with short-lagged variables, or studies in different periods may lead to different findings, as shocks and changes in exchange regimes occur regularly in Indonesia. These findings are important as they imply that Indonesia may fail to reach the aims of the AEC if it fails to coordinate its exchange rate policy with the rest of the AEC.
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