Output Composition of Monetary Policy Transmission Mechanism in Indonesia

Abstract This paper aims to investigate the role of each aggregate spending component in the monetary policy transmission in Indonesia. It assesses the relative strength of the role of each spending component in the monetary policy transmission. In so doing, this study employs the contribution analysis, which is calculated based on the cumulative impulse response of each component of GDP to a monetary policy tightening shock estimated from structural vector autoregressive (SVAR) models. This paper finds that on average consumption spending plays predominant role in the monetary policy transmission.