The Analysis Of Monetary Policy Transmission Mechanism Effectiveness To Indonesia Economic Growth”

Salomo, Herbet and Edy, Rahmantyo (2009) The Analysis Of Monetary Policy Transmission Mechanism Effectiveness To Indonesia Economic Growth”. Undergraduated thesis, Fakultas Ekonomi UNIB.

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Abstract

The objectives of this research are to analyze the effectiveness of monetary policy transmission mechanism to Indonesia economy growth and which monetary instruments can explain the variability of macroeconomic variables better. This study apply Vector Error Correction Model on quarterly Indonesian economic data during period of 1999.1 - 2008.4 and observe monetary policy variables namely base money, SBI interest rate, one month commercial bank deposit interest rate, and macroeconomic variables namely consumer price index, gross domestic product, and exchange rate (rupiah/dollar). The model approach provide three quantitative measurements, (i) VAR estimation with VECM model, showing influenced from monetary policy to economic growth pursuant to t-test at α=5%; (ii) impulse response function that can trace the response of one endogenous variable caused by shock/ innovation of other variables in the model; (iii) variance decomposition to show the relative contribution of certain endogenous variable variability. The result of VECM estimation shows that monetary policy with base money variable has positively influencing economic growth of Indonesia at second and third lag. Meanwhile, when SBI interest rate is used as monetary policy instrument has positively influence to economic growth at first and second lag. Impulse response function shows that economic growth responsed the shock of base money with strong influenced but leaves a price puzzle and exchange rate puzzle. The used of SBI as policy variable gives not much better result than base money as price puzzle and exchange rate puzzle has still found but its very weak influence to economic growth. The result of variance decomposition shows that base money contributes until 16.54% the economic growth fluctuation and happened stablely as long as period, meanwhile SBI interest rate has not much better than base money capability in explaining the economic growth fluctuation only 5.20%, and that is happened on a long term.

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