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

Hero Wonida () and Sekar Utami Setiastuti ()
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Hero Wonida: Bank Indonesia
Sekar Utami Setiastuti: Department of Economics, Faculty of Economics and Business, Universitas Gadjah Mada

No 202308007, Gadjah Mada Economics Working Paper Series from 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.

Keywords: Monetary policy; Macroprudential policy; Bank risk-taking (search for similar items in EconPapers)
JEL-codes: G21 G28 G32 (search for similar items in EconPapers)
Pages: 24 pages
Date: 2023-08
New Economics Papers: this item is included in nep-cba, nep-mon and nep-sea
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