THE OPTIMAL MONETARY POLICY INSTRUMENTS: THE CASE OF INDONESIA

Abstract

In 1999, the central bank of Indonesia, Bank Indonesia, gained its independence. The new Central Bank Act has established a more explicit foundation for Bank Indonesia’s independence. Firstly, goal independence, in which Bank Indonesia sets its own monetary target. Secondly, instrument independence, in which Bank Indonesia implements various policy instruments to achieve that target. The primary objective of Bank Indonesia (henceforth BI) is to achieve and maintain price stability reflected in a low and stable inflation rate.