PROCEEDING 3RD ICIBF, 23-26 FEBRUARY 2010, INDONESIA
Title: Transmission Mechanism on Dual Monetary System in Indonesia: Comparison Between Shariah and Conventional Instruments
Abstract:
The
transmission mechanism of monetary policy has been an area of abundant
economic research in many countries. The financial system links monetary
policy and the real economy. Thus, events or trends that affect the
financial system can also change the monetary transmission mechanism.
This study tries to analyze transmission mechanism in Indonesian dual
monetary system, using Vector Auto Regression (VAR) and Vector Error
Correction Model (VECM) methods.
Results
show that the relationship between LNIHK and shariah instruments:
financing (LNFINCG), SBIS and PUAS is negative. It means, when the total
of shariah financing be increase, it will gives positive contribution
for reducing inflation rate in Indonesia, because with this system possibility to make equal growth among monetary and real sectors appears. Therefore,
it will be strategic action for monetary authority to grow up shariah
banking share in Indonesia, for minimizing ‘bad inflation’ in economy.
JEL Classification: C32, E31, E42, E52
Keywords: Transmission Mechanism, Dual Monetary System, Shariah Instruments, VAR/VECM
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