A VAR – VECM APPROACH IN EXPLAINING THE INFLUENCE OF SHARIA MONETARY INSTRUMENTS TOWARD INFLATION IN INDONESIA

Andi Triyawan and Hafizah Latifah

No wqynf, OSF Preprints from Center for Open Science

Abstract: Sharia monetary instruments incorporate monetary control based on sharia principles to assist Bank Indonesia in developing and implementing monetary policy. That’s way, it is expected that sharia monetary policy will create economic stability in Indonesia, one of which is rupiah value stability or inflation control. The goal of this research was to look at the impact of sharia monetary instruments, specifically Sharia Bank Indonesia Certificates (SBIC), Bank Indonesia Sharia Deposit Facilities (BISDF), and Sharia Interbank Call Money (SICM), on Indonesian inflation from 2011 to 2020. This is a quantitative study that explains the relation between the independent and dependent variables. The inflation percentage is the dependent variable, whereas the number of SBIC, BISDF, and SICM is the independent variable. This study used time series data from 2011-2020. The Vector Autoregressive (VAR) or Vector Error Correction Model (VECM) method is used in the analysis. The VECM estimation results reveal that SBIC has no effect on inflation in the long or short term. In the meantime, the BISDF has a large favorable influence on inflation, but only in the short term. Finally, in the long term, SICM has a negative influence on inflation, although in the short term, SICM has no effect on inflation. Furthermore, according to the Granger causality test, only the SBIC and BISDF variables demonstrate bidirectional causality. Meanwhile, unidirectional causality exists between the BISDF and inflation, SBIC and SICM, so do BISDF and SICM.

Date: 2023-07-24
New Economics Papers: this item is included in nep-ban, nep-cba, nep-isf, nep-mon and nep-sea
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Persistent link: https://EconPapers.repec.org/RePEc:osf:osfxxx:wqynf

DOI: 10.31219/osf.io/wqynf

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