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It is shown how the frequency of central bank intervention in financial markets can affect the incentives for economic agents to acquire information, which will be reflected in market prices and thus become available to policy makers. The optimal frequency of intervention, and therefore the optimal interest rate variability, will balance the desirability of attaining given operational targets against the benefits of encouraging informational efficiency. The ability of the central bank to send clear signals of its own intentions will also depend on market informational efficiency.

Banks and Banking --- Finance: General --- Monetary Policy --- Information and Market Efficiency --- Event Studies --- Banks --- Depository Institutions --- Micro Finance Institutions --- Mortgages --- General Financial Markets: General (includes Measurement and Data) --- Banking --- Finance --- Money markets --- Banks and banking --- Money market

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Adjustment assistance is provided to local investors responding to policy reform and facing adjustment costs, to facilitate their activity–a signal to foreign investors about the profitability of investing in the local economy. The government, in providing assistance, maximizes its utility subject to its budgetary constraint, taking into account the utility forgone in alternative uses of budgetary funds. Foreign investors use the signal to update beliefs about investors in the local economy and compute the expected return from investing in the country. The investment response of foreign investors depends on the expected return so computed relative to the expected returns in their alternative investments worldwide.

Exports and Imports --- Finance: General --- Investments: General --- Macroeconomics --- International Investment --- Long-term Capital Movements --- Information and Market Efficiency --- Event Studies --- Fiscal and Monetary Policy in Development --- Investment --- Capital --- Intangible Capital --- Capacity --- Labor Economics: General --- General Financial Markets: General (includes Measurement and Data) --- Finance --- Labour --- income economics --- Foreign direct investment --- Return on investment --- Private investment --- Labor --- Capital markets --- Investments, Foreign --- Saving and investment --- Labor economics --- Capital market

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The structure of the financial system in Indonesia is examined through the analytical lens of the system’s contribution to the growth, stability, and efficiency of the Indonesian economy. The focus is on the banking system and securities markets, which are the primary mechanisms for mobilizing savings and allocating investment funds. Five key policy issues are highlighted: (1) the level of bank capitalization; (2) the supervision and regulation of banks; (3) the structure of banking markets; (4) the deepening of securities markets; and (5) the supervision and regulation of securities markets.

Banks and Banking --- Finance: General --- Money and Monetary Policy --- Financial Markets and the Macroeconomy --- Information and Market Efficiency --- Event Studies --- Financial Institutions and Services: General --- Banks --- Depository Institutions --- Micro Finance Institutions --- Mortgages --- Financial Institutions and Services: Government Policy and Regulation --- General Financial Markets: General (includes Measurement and Data) --- Monetary Policy, Central Banking, and the Supply of Money and Credit: General --- Banking --- Finance --- Monetary economics --- Stock markets --- Securities markets --- Commercial banks --- Bank credit --- Financial markets --- Financial institutions --- Foreign banks --- Money --- Banks and banking --- Stock exchanges --- Capital market --- Credit --- Banks and banking, Foreign --- Indonesia