FISCAL and MONETARY POLICY INTERACTIONS in Indonesia during PERIODS of ECONOMIC TURMOIL in the US: 2001Q1-2014Q4

Abstract

This study investigates the formation of the interaction between monetary and fiscal policies in Indonesia during periods of economic turmoil in the US (external shock) based on the Hybrid New Keynesian (HNK) model. The study estimates the HNK model using the Full Information Maximum Likelihood and time-series data over the period 2001Q1-2014Q4. The result reveals the form of coordination is a monetary-led policy mix between active monetary policy and passive fiscal policy. The degree of coordination is down when external shock increases.