RISK APPETITE AND FOREIGN EXCHANGE INTERVENTION IN AN INFLATION-TARGETING FRAMEWORK: THE CASE OF INDONESIA

The use of foreign exchange intervention in an inflation-targeting framework raises the question regarding its role. In addition, environment volatile capital flows, how risk appetite investors might impact economy is worth exploring. This paper examines these issues for Indonesia by developing and estimating a dynamic stochastic general equilibrium model. study finds that affects macroeconomic variables through portfolio channel. also increasing price capital. helps stabilizing during presence shocks monetary policy shocks.