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The Effect of Monetary Policy & Macroprudential Policy and Their Interaction on Bank Risk-Taking in Indonesia

Author

Listed:
  • Hero Wonida

    (Bank Indonesia)

  • Sekar Utami Setiastuti

    (Department of Economics, Faculty of Economics and Business, Universitas Gadjah Mada)

Abstract

We use the Indonesian quarterly bank-level data from 2009Q1 to 2021Q1 to investigate the effect of monetary policy, macroprudential policy, and the interaction between both policies on bank risk-taking in Indonesia. Several important results emerge. Firstly, we find evidences of the existence of risk-taking channels of the monetary policy in Indonesia, and that both bank size and level of capital have a relatively significant negative impact on bank risk-taking. Secondly, macroprudential policy tightening lowers bank risk-taking. We also find that the interaction between macroprudential policy and monetary policy tightening lowers risk-taking.

Suggested Citation

  • Hero Wonida & Sekar Utami Setiastuti, 2023. "The Effect of Monetary Policy & Macroprudential Policy and Their Interaction on Bank Risk-Taking in Indonesia," Gadjah Mada Economics Working Paper Series 202308007, Department of Economics, Faculty of Economics and Business, Universitas Gadjah Mada.
    • Handle: RePEc:gme:wpaper:202308007
    as

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    File URL: https://econworkingpaper.feb.ugm.ac.id/download/working_paper/202308007.pdf
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    References listed on IDEAS

    as
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    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Monetary policy; Macroprudential policy; Bank risk-taking;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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