The Effectiveness of the Macroprudential and Monetary Policies in Indonesia: Financial Stability and Price Stability Approach

Abstract

Policy mixes by Bank Indonesia to promote sustainable economic growth not only through monetary policy in stabilizing prices but is also necessary for the stabilization of the financial system through the implementation of macroprudential policies in the financial system. This study can contribute to the development of the conceptual framework of monetary and macroprudential policy mixes as well as to provide an effective alternative transmission in achieving the main objective of Bank Indonesia. The data used in this study are monthly data in 2007M1 to 2016M9. The variables used were the nominal exchange rate, inflation, credit, real GDP, asset prices and Index Financial Stability (ISSK). Instruments used as macroprudential monetary policy mixes areBI rate and GWM primary, GWM secondary, GWM Valas, GWM+LDR, LTV, and CCB. Structural Vector Autoregression (SVAR)is applied to see the influence of variables through the restriction as well as instruments that have an effective influence. The results showed that the interest rate of Bank Indonesia which is accompanied by GWM primary, GWM secondary, GWM Valas, GWM+LDR, LTV, and CCB influence price stabilization through credit and economic growth, while in the stabilization of the financial system, interest rate instruments, secondary statutory reserves and statutory reserves Currency influence through credit, asset prices and exchange rates.