ASYMMETRIC IMPACTS OF MONETARY POLICY SHOCK ON OUTPUT GAP: EVIDENCE FROM REGIONS IN INDONESIA

Abstract

We examine the impact of the monetary policy on regional output gaps across 33 Indonesian provinces. Heterogeneous regional responses of the output gap to monetary policy shock are captured using the Vector Autoregressive model. Moreover, the idiosyncratic variations across provinces accounted for different responses are observed with the spatial econometric model. The spatial analysis suggests that economic structure and financial depth positively and significantly determine the aforesaid asymmetric responses. On the other hand, economic size and trade openness have a negative impact on them.