The Role Of Monetary Policy In The Economic Crisis In Indonesia 2007-2009

Abstract

Impacted by the global economic crisis in 2008, Indonesia grappled with economic slowdown, escalating prices, and depreciating currency values. In response, the government and Bank Indonesia enacted monetary policy measures, prominently reducing interest rates. The primary aim is to scrutinize how a judicious and adaptable monetary policy, coupled with fiscal strategies and other real-economy interventions, can alleviate adverse effects and expedite recovery from economic slumps and promote a more rapid recovery. This study, utilizing multiple linear regression, intricately examines the relationship between these variables, with a specific focus on the impact of monetary policy during Indonesia's economic downturn. Encouragingly, the results unveil Indonesia's economic resilience, illustrating a robust recovery by 2010. Statistical analyses underscore a substantial relationship between interest rates, inflation, and GDP. However, the study identifies potential challenges, noticing that interest rate reductions may trigger inflation and currency depreciation. This research contributes not only scientifically but also practically to economic development by emphasizing the importance of responsiveness, flexibility, and coordination of monetary policy in the face of economic crises. The findings emphasize the necessity of a well-calibrated monetary policy. Addressing the research gap, this article delves into the nuanced impact of monetary policy on Indonesia's 2008 economic recession, enriching our understanding of effective crisis management strategies. By navigating the complexities of economic dynamics, this research provides valuable insights for policymakers, emphasizing the importance of proactive and coordinated measures to mitigate the impact of economic downturns and foster sustainable recovery.