The Impact of Monetary Policy and Capital Flows on Economic Growth in Indonesia

DOI

10.2991/978-94-6239-709-5_121How to use a DOI?

Keywords

Monetary Policy; Capital Flows; M2; Inflation; Real Interest Rate; Exchange Rate; Foreign Direct Investment (FDI); Portfolio Investment; ARDL; Indonesia’s Economic Growth

Abstract

This study investigates the dynamic influence of monetary policy and international capital flows on Indonesia’s economic growth amidst the challenges of global integration. Utilising an Autoregressive Distributed Lag (ARDL) framework with time series data from 1990 to 2024, the research integrates money supply, inflation, real interest rates, exchange rates, Foreign Direct Investment (FDI) and portfolio investment into a unified dynamic model. The empirical findings reveal a heterogeneous impact structure. In the short run, monetary expansion, elevated real interest rates and exchange rate depreciation tend to suppress growth, whereas capital flows exhibit cyclical fluctuations. Crucially, the long-run analysis demonstrates that monetary variables remain the dominant determinants, where excessive liquidity, high interest rates and currency depreciation exert significant negative effects. Conversely, moderate inflation positively supports growth, while foreign capital inflows fail to demonstrate a statistically significant structural contribution. These results highlight that monetary stability serves as the primary engine of Indonesian economic resilience, while the potential of foreign capital remains constrained by structural limitations. Consequently, the study advocates for reinforced monetary policy coordination and stable exchange rate management alongside strategic reforms to optimise the quality of foreign investment for sustainable development.

Copyright

© 2026 The Author(s)

Open Access

Open Access This chapter is licensed under the terms of the Creative Commons Attribution-NonCommercial 4.0 International License (http://creativecommons.org/licenses/by-nc/4.0/), which permits any noncommercial use, sharing, adaptation, distribution and reproduction in any medium or format, as long as you give appropriate credit to the original author(s) and the source, provide a link to the Creative Commons license and indicate if changes were made.

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TY  - CONF
AU  - Anas Iswanto Anwar
AU  - Muh Akram Pratama Amir
PY  - 2026
DA  - 2026/06/20
TI  - The Impact of Monetary Policy and Capital Flows on Economic Growth in Indonesia
BT  - Proceedings of the 10th International Conference on Accounting, Management, and Economics (10th ICAME 2025)
PB  - Atlantis Press
SP  - 1725
EP  - 1747
SN  - 2352-5428
UR  - https://doi.org/10.2991/978-94-6239-709-5_121
DO  - 10.2991/978-94-6239-709-5_121
ID  - Anwar2026
ER  -