ASYMMETRIC TRANSMISSION OF MONETARY POLICY TO INTEREST RATES: EMPIRICAL EVIDENCE FROM INDONESIA

Authors

Fitri Ami Handayani, University of Indonesia, IndonesiaFollow
Febrio Nathan Kacaribu, University of Indonesia, IndonesiaFollow

Document Type

Article

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.

Recommended Citation

Handayani, Fitri Ami and Kacaribu, Febrio Nathan (2021) "ASYMMETRIC TRANSMISSION OF MONETARY POLICY TO INTEREST RATES: EMPIRICAL EVIDENCE FROM INDONESIA," Bulletin of Monetary Economics and Banking: Vol. 24: No. 1, Article 2.
DOI: https://doi.org/10.21098/bemp.v24i1.1201
Available at: https://bulletin.bmeb-bi.org/bmeb/vol24/iss1/2

First Page

119

Last Page

150

Creative Commons License

This work is licensed under a Creative Commons Attribution-NonCommercial 4.0 International License

Country

Indonesia

Affiliation

University of Indonesia