The effect of monetary, macroprudential policy, and their interaction on bank risk-taking in Indonesia

Hero Wonida and Sekar Utami Setiastuti

Journal of Asian Economics, 2025, vol. 96, issue C

Abstract: We employ quarterly bank-level data from 79 conventional commercial banks in Indonesia from 2009Q1 to 2021Q3 to investigate the effect of monetary policy, macroprudential policy, and the interaction of both policies on bank risk-taking in Indonesia. Several important results emerge. First, we find evidence of the risk-taking channel of monetary policy in Indonesia. Furthermore, banks with larger sizes and higher capital levels have a lower risk-taking tendency, represented by the Z-score. Second, macroprudential tightening lowers bank risk-taking. We also find that the interaction between macroprudential and monetary policy tightening reduces risk-taking. To ensure that the results are robust, we estimate our model using different measures of Z-score.

Keywords: Monetary policy; Macroprudential policy; Bank risk-taking (search for similar items in EconPapers)
JEL-codes: E58 E61 G21 G32 (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:eee:asieco:v:96:y:2025:i:c:s1049007824001581

DOI: 10.1016/j.asieco.2024.101863

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