Monetary and macroprudential policies in the presence of external shocks: evidence from an emerging economy

Purpose This paper examines the impact of using reserve requirements, combined with foreign exchange (FX) intervention, as key instruments in an inflation-targeting framework. Design/methodology/approach In context a dynamic stochastic general equilibrium (DSGE) framework and Bayesian techniques, authors estimate model for Indonesian economy quarterly data spanning period 2005Q2–2019Q4. Findings The requirement is found to assume complementary role that interest rate policy FX intervention when used stabilise macroeconomy. Originality/value provides benchmark other emerging countries consider adopting inflation targeting impose part their monetary policy.