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Asymmetric Transmission Of Monetary Policy To Interest Rates: Empirical Evidence From Indonesia

Author

Listed:
  • Fitri Ami Handayani

    (University of Indonesia)

  • Febrio Kacaribu

    (University of Indonesia)

Abstract

This study investigates monetary policy transmission to the interest rates in Indonesia, focusing on changes in pricing behavior that may have occurred after the shift of benchmark policy rates in August 19, 2016. We analyzed monthly data on money market, deposit, and lending rates from November 2011 to December 2019. Two specifications of the error correction model capture asymmetric adjustments. We find that the new policy rate regime has improved the response of money market rates. However, the rigidity of bank retail rates has increased. Specifically, lending rates have become more rigid upwards, as lenders have become more responsive to monetary easing than to monetary tightening.

Suggested Citation

  • Fitri Ami Handayani & Febrio Kacaribu, 2021. "Asymmetric Transmission Of Monetary Policy To Interest Rates: Empirical Evidence From Indonesia," Bulletin of Monetary Economics and Banking, Bank Indonesia, vol. 24(1), pages 119-150, March.
    • Handle: RePEc:idn:journl:v:24:y:2021:i:1f:p:119-150
    DOI: https://doi.org/10.21098/bemp.v24i1.1201
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    Citations

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    Cited by:

    1. Lee, Chi-Chuan & Lee, Chien-Chiang, 2023. "International spillovers of U.S. monetary uncertainty and equity market volatility to China’s stock markets," Journal of Asian Economics, Elsevier, vol. 84(C).
    2. Soedarmono, Wahyoe & Gunadi, Iman & Pambudi, Sudiro & Nurhayati, Tika, 2023. "Monetary policy, funding liquidity, and undisbursed loans in Indonesia: The bank lending channel revisited," Journal of Economics and Business, Elsevier, vol. 127(C).

    More about this item

    Keywords

    Monetary policy; Asymmetric adjustment; Indonesia;
    All these keywords.

    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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