The Analysis of Efficiency for The Bank's Monetary Macroprudential Policy During and After the Covid-19 Outbreak Using the DSGE Model in Indonesia

Abstract

This research aims to develop a small-scale New Keynesian DSGE model from the relative performance of various monetary and macroprudential policy combinations when the Indonesian economy is affected by Covid-19 outbreak shocks and the projection after Covid-19 pandemic. Besides that, this study will also analyze the impulse-responses to orthogonalized shock in technology, inflation, domestic price, capital flow, and some policies related monetary and macroprudential policy shocks. This study uses the Bayesian Estimation method approach in estimating the DSGE Model in the Indonesian. The data used in this study is national economic and banking data in Indonesia in the period 2009.Q3 to 2022.Q4 using 16 variables and 5 macroprudential policy.

We found that the technological shock was the shock that most influenced the mix of monetary and macroprudential policy during the Covid-19 pandemic. On the other hand, capital flow management shocks do not have a significant impact on policy implementation. During the Covid-19 period, only a mixture of monetary policy with Capital Adequacy Ratio, Countercyclical Buffer, Macroprudential Intermediation Ratio, and Macroprudential Liquidity Buffer was able to maintain the stability of the financial system that was proven by improved relative well-being during the observation period. Meanwhile, the LTV ratio policy does not make a better contribution than simply using monetary policy (MP) alone in tackling the financial friction during the Covid-19 outbreak.