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Macroeconomic Determinants of Interest Rate Volatility in Indonesia: A Structural VAR Analysis

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  • Agus Salim

Abstract

The determination of interest rates is not only influenced by inflation rate but also the sharing of factors of other macroeconomic variables. The study of the determinants interest rate has developed based on the variability and the methodological concept. Since the purpose of this study is to analyze the effect of macroeconomic variables on the interest rate volatility in Indonesia, we apply ordinary least square to estimates the empirical model of interest rate determinants statically, and the structural VAR analysis dynamically. The result of the estimation reveals that the coefficient estimates of money supply, exchange rate, and the GDP growth have negative and significant effect in the long-run. However, the risk premium shock has positive and significant effect on the interest rate and inflation rate in Indonesia.

Suggested Citation

  • Agus Salim, 2019. "Macroeconomic Determinants of Interest Rate Volatility in Indonesia: A Structural VAR Analysis," International Journal of Applied Economics, Finance and Accounting, Online Academic Press, vol. 5(2), pages 101-108.
    • Handle: RePEc:oap:ijaefa:v:5:y:2019:i:2:p:101-108:id:134
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    Cited by:

    1. Özer Depren & Mustafa Tevfik Kartal & Serpil Kılıç Depren, 2021. "Recent innovation in benchmark rates (BMR): evidence from influential factors on Turkish Lira Overnight Reference Interest Rate with machine learning algorithms," Financial Innovation, Springer;Southwestern University of Finance and Economics, vol. 7(1), pages 1-20, December.
    2. Sana Sultan & Misbah Rauf & Kashif Saeed & Asad Abbas & Dr Muhammad Ramzan Sheikh, 2024. "Dynamics of Causality between Inflation Volatility and Exchange Rate Volatility in Pakistan: A Time Series Analysis," Bulletin of Business and Economics (BBE), Research Foundation for Humanity (RFH), vol. 13(2), pages 526-531.

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