Does Reforming the Benchmark Policy Rate Really Work? The Analysis of Monetary Policy Transmission in Indonesia

Prasetyo, Ahmad Danu

doi:10.1007/978-3-030-38253-7_18

Does Reforming the Benchmark Policy Rate Really Work? The Analysis of Monetary Policy Transmission in Indonesia

Ahmad Danu Prasetyo³

Conference paper
First Online: 25 February 2020

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Part of the book series: Springer Proceedings in Business and Economics ((SPBE))

Abstract

We conduct a VAR model to analyze the effectiveness of transmission of monetary policy aftermath the implementation of the new policy rate in Indonesia. We include variables that proxy five channels of the monetary policy transmission, i.e., the inflation, the exchange rate, the asset price, and the credit channel. The result of the study shows that the change of the monetary policy regime does make an impact through the transmission channels. Furthermore, the impulse of the intertemporal gap of policy rate would increase the government bond yield, expected inflation, and investment credit rate in the short term. On the opposite, it will depreciate the stock index and the domestic exchange rates. However, the response of the impulse will be diminished over the long-term period; except for investment credit rate, the impulse will persist for the long term.

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Authors and Affiliations

Institut Teknologi Bandung, Ganesha st. No. 10, Bandung, 40132, Indonesia
Ahmad Danu Prasetyo

Authors

Ahmad Danu Prasetyo
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Correspondence to Ahmad Danu Prasetyo .

Editor information

Editors and Affiliations

Department of Economics, University of Western Macedonia, Kastoria, Greece
Nicholas Tsounis
Department of Economics, University of Western Macedonia, Kastoria, Greece
Aspasia Vlachvei

Appendices

Appendix 1: Summary of Unit Root Analysis

Series: SINDEX, BYIELD, JISDOR, EXP_INF, INVCRRATE, DPOLICY
Exogenous variables: individual effects, individual linear trends
Automatic selection of maximum lags
Automatic lag length selection based on SIC: 0–1
Newey–West automatic bandwidth selection and Bartlett kernel
Method	Statistic	Prob.**	Cross-sections	Obs
Null: unit root (assumes common unit root process)
Levin, Lin and Chu t	−3.46852	0.0003	6	331
Null: unit root (assumes individual unit root process)
Im, Pesaran and Shin W-stat	−2.53322	0.0057	6	331
ADF—Fisher Chi-square	33.6282	0.0008	6	331
PP—Fisher Chi-square	27.6821	0.0062	6	332

**Probabilities for Fisher tests are computed using an asymptotic Chi-square distribution. All other tests assume asymptotic normality

Appendix 2: Summary of Lag Measurement in the Model

Endogenous variables: DPOLICY JISDOR EXP_INF BYIELD INVCRRATE SINDEX

Exogenous variables: C

Included observations: 51

Lag	LogL	SC
0	−875.3298	34.78922
1	−594.0700	26.53484*
2	−554.6387	27.76392
3	−520.2615	29.19120
4	−472.0084	30.07433

*Indicate the selected lagging period

Appendix 3: Granger Cause Analysis

Null hypothesis	F-statistic	Prob.
JISDOR does not granger cause DPOLICY	0.0209	0.8855
DPOLICY does not granger cause JISDOR	4.0782	0.0485	**
EXP_INF does not granger cause DPOLICY	0.0960	0.7579
DPOLICY does not granger cause EXP_INF	0.0240	0.8774
BYIELD does not granger cause DPOLICY	0.6356	0.4289
DPOLICY does not granger cause BYIELD	0.2945	0.5896
INVCRRATE does not granger cause DPOLICY	1.3283	0.2545
DPOLICY does not granger cause INVCRRATE	3.7543	0.0582	*
SINDEX does not granger cause DPOLICY	1.4112	0.2404
DPOLICY does not granger cause SINDEX	0.0015	0.9693
EXP_INF does not granger cause JISDOR	0.0007	0.9785
JISDOR does not granger cause EXP_INF	1.2525	0.2681
BYIELD does not granger cause JISDOR	1.2860	0.2619
JISDOR does not granger cause BYIELD	0.0421	0.8383
INVCRRATE does not granger cause JISDOR	0.2261	0.6364
JISDOR does not granger cause INVCRRATE	15.2333	0.0003	***
SINDEX does not granger cause JISDOR	3.4771	0.0680	*
JISDOR does not granger cause SINDEX	0.1178	0.7328
BYIELD does not granger cause EXP_INF	0.5329	0.4686
EXP_INF does not granger cause BYIELD	0.9163	0.3428
INVCRRATE does not granger cause EXP_INF	1.9219	0.1717
EXP_INF does not granger cause INVCRRATE	7.4612	0.0086	***
SINDEX does not granger cause EXP_INF	0.2122	0.6470
EXP_INF does not granger cause SINDEX	1.4939	0.2272
INVCRRATE does not granger cause BYIELD	1.4227	0.2385
BYIELD does not granger cause INVCRRATE	0.0028	0.9584
SINDEX does not granger cause BYIELD	0.0436	0.8355
BYIELD does not granger cause SINDEX	6.2683	0.0155	**
SINDEX does not granger cause INVCRRATE	0.2236	0.6384
INVCRRATE does not granger cause SINDEX	4.7316	0.0343	**

Appendix 4: VAR Residual Serial Correlation LM Test

Null Hypothesis: no serial correlation at lag order h

Included observations: 54

Lags	LM-stat	Prob.
1	50.04437	0.0600

Probs from chi-square with 36 df

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Prasetyo, A.D. (2020). Does Reforming the Benchmark Policy Rate Really Work? The Analysis of Monetary Policy Transmission in Indonesia. In: Tsounis, N., Vlachvei, A. (eds) Advances in Cross-Section Data Methods in Applied Economic Research. ICOAE 2019. Springer Proceedings in Business and Economics. Springer, Cham. https://doi.org/10.1007/978-3-030-38253-7_18

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DOI: https://doi.org/10.1007/978-3-030-38253-7_18
Published: 25 February 2020
Publisher Name: Springer, Cham
Print ISBN: 978-3-030-38252-0
Online ISBN: 978-3-030-38253-7
eBook Packages: Economics and FinanceEconomics and Finance (R0)

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