Regional economic structure and heterogeneous effects of monetary policy: evidence from Indonesian provinces

We analyze how regional economic structures affect the impact of monetary policy on rates of inflation across 34 Indonesian provinces. The paper first applies a structural factor-augmented vector autoregressive model (SFAVAR) to all 34 provinces based on monthly provincial data in order to measure the length and magnitude of responses of regional inflation to monetary policy shocks, derived from the consequential impulse response functions. In the second step, we analyze the impact of economic structures on the length and magnitude of regional inflationary responses.

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