Monetary Whispers Across Space

Inhaltsverzeichnis

1. Frontmatter

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2. Chapter 1. Introduction

   • Open Access

   Iwan J. Azis

   Abstract

   Decades ago, most regions outside Jawa and those in Eastern Indonesia stood as a stark symbol of less-developed parts of Indonesia. At the time, outside Jawa faced greater infrastructure deficiencies than Jawa. The disparities between regions were glaring, with income, wealth, and opportunities concentrated in Jawa. Any measures of interregional inequality confirmed the observation.

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3. Chapter 2. Space and Money

   • Open Access

   Iwan J. Azis

   Abstract

   The importance of regional development for national growth is widely known. Although GDP is essentially the sum of all subnational (regional) GDP, synergy and interdependence between regions and between central and local economies play a critical role in the process. Given the interdependence among regions, individual regions could grow higher than they would individually, e.g., through sharing resources and ideas. When several regions work together, combining their development will achieve a greater national output compared to the case if they work alone. If they prosper and share resources and ideas with other regions, they can create a powerful interconnected network. This network is stronger in a system of subnational regions than in an international context and could fuel national advancement in ways that isolated growth could not. When subnational regions operate in synergy and embrace their interdependence, their seamless coordination fits together like puzzle pieces, painting a brighter picture of the overall economy.

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4. Chapter 3. Expanding Unequally and Unproductively

   • Open Access

   Iwan J. Azis

   Abstract

   As argued in the preceding chapter, interregional inequality is an important feature of any development process. The U-shape hypothesis is not always corroborated by the evidence. There is also little consensus on the causes of interregional inequality, let alone policies that could significantly affect–improve or worsen–it. In part because of these reasons, social planners and policy makers are not too willing to accept any measures to address inequality if such measures create trade-offs with aggregate indicators based on the standard macro-framework. If the proposed measures to reduce inequality make national growth slower than the target or require changes (postponement) of predetermined national projects, they are not favored and put the proposed measures on the shelf even if the repercussions of the projects will widen the development gap between regions. This could happen either because they are not aware that those national projects could have some detrimental effects or because they insist that the projects must proceed no matter what.

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5. Chapter 4. Ignoring Spatial Factors

   • Open Access

   Iwan J. Azis

   Abstract

   It was argued in Chap. 2 that any development process will involve centripetal-agglomeration forces. Left unattended, the development outcome would be tainted by growing inequality. In Chap. 3, the evidence was clearly shown that the inequality between regions in Indonesia is high by international standards and on the rise. This is despite the fact that various policies have been implemented to improve development outside of Jawa and eastern Indonesia. A fairly large amount of expenditure and investment was made and a substantial number of infrastructure had been built with the expectation that they would narrow the development gap between developed and less developed regions. Why did those policies not produce the intended outcome and why did the huge amount of built infrastructure fail to boost the economy and multipliers of less developed regions? Was the amount insufficient, or was it due to resource misallocation and mistargeted infrastructure?

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6. Chapter 5. Broken Ladder: Was Monetary Policy Effective?

   • Open Access

   Iwan J. Azis

   Abstract

   The main goal of monetary policy is to achieve economic stability and growth with certain targets to meet using a variety of monetary tools. Price stability is the most conventional goal where the target is to keep inflation at a certain level or within a specified range. The purpose is to protect the purchasing power of money and to enable businesses to make plans with more certainty. Related to price stability is exchange rate stability, because high inflation can be triggered by currency instability. Having a stable exchange rate allows monetary authority to better control inflation and achieve other macroeconomic goals using monetary tools such as interest rates. The stability of the price and exchange rate also helps maintain the social stability and cohesion needed for business and economic activities to operate without disruptions or disturbances due to unrest.

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7. Chapter 6. Go Behind the Wall

   • Open Access

   Iwan J. Azis

   Abstract

   We have discussed in Chap. 2 that the sources of heterogeneous effects of monetary policy across regions can be viewed from two different perspectives: different structures and characteristics across regions and different behavior of local banks towards credit allocation. In both perspectives, the magnitude and directions of the heterogeneous effects depend on the period under analysis, and the accuracy of the estimates of the effect crucially depends on the adopted measure (Romer and Romer, Am. Econ. Rev. 94:1055–1084, 2004). In fact, as revealed in the preceding chapter, the responses of the regions to monetary policy, observed through regional credit allocation, are quite different from the average response. The responses in one region are not the same as those in other regions.

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8. Chapter 7. Reflections

   • Open Access

   Iwan J. Azis

   Abstract

   Any process of development involves centripetal and centrifugal forces. In the physics of circular motion, centripetal forces keep an object moving in a circle and are always pointing toward the center of that circle. It is like the gravitational force of the Sun that keeps Earth orbiting it. In the economics of development, centripetal forces cause activities to concentrate in certain regions or locations (agglomeration phenomena), driven by the external economies. The opposite force, the centrifugal force, is fictitious. It is a phantom force but nevertheless feels very real, i.e., experiencing an outward force when we rotate the object in a circle. In spatial economics, this force refers to the dispersion of activities across regions. It is neither fictitious nor improbable.

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