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Monetary policy, macroprudential policy, and bank risk-taking behaviour in the Indonesian banking industry

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  • Cep Jandi Anwar
  • Nicholas Okot
  • Indra Suhendra
  • Dwi Indriyani
  • Ferry Jie

Abstract

There is a growing consensus on the translation of monetary policy actions into changes in credit demand on account of changes in interest rates. The study investigates monetary policy, macroprudential policy, bank-specific and macroeconomic determinants of bank risk-taking from 2010–2022 in Indonesia. The study aims to address a gap in the literature because most previous studies have focused on advanced markets. First, three POLS and fixed effect models are estimated. However, the Durbin Wu-Hausman test indicated endogeneity issues with the estimated models. The second stage uses a system GMM estimation to investigate the impact of central bank rates and macroprudential policy on bank risk-taking. Dynamic-GMM estimations find that, partially the central bank rate and macroprudential policy have a positive impact on bank Z-Score. Furthermore, when central bank rate and macroprudential policy are included in a model, we still find a positive impact of both policies on bank Z-Score.

Suggested Citation

  • Cep Jandi Anwar & Nicholas Okot & Indra Suhendra & Dwi Indriyani & Ferry Jie, 2024. "Monetary policy, macroprudential policy, and bank risk-taking behaviour in the Indonesian banking industry," Journal of Applied Economics, Taylor & Francis Journals, vol. 27(1), pages 2295732-229, December.
    • Handle: RePEc:taf:recsxx:v:27:y:2024:i:1:p:2295732
    DOI: 10.1080/15140326.2023.2295732
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