Monetary policy, macroprudential policy, and bank risk-taking behaviour in the Indonesian banking industry

Cep Jandi Anwar (), Nicholas Okot, Indra Suhendra, Dwi Indriyani and Ferry Jie

Journal of Applied Economics, 2024, vol. 27, issue 1, 2295732

Abstract: There is a growing consensus on the translation of monetary policy actions into changes in credit demand on account of changes in interest rates. The study investigates monetary policy, macroprudential policy, bank-specific and macroeconomic determinants of bank risk-taking from 2010–2022 in Indonesia. The study aims to address a gap in the literature because most previous studies have focused on advanced markets. First, three POLS and fixed effect models are estimated. However, the Durbin Wu-Hausman test indicated endogeneity issues with the estimated models. The second stage uses a system GMM estimation to investigate the impact of central bank rates and macroprudential policy on bank risk-taking. Dynamic-GMM estimations find that, partially the central bank rate and macroprudential policy have a positive impact on bank Z-Score. Furthermore, when central bank rate and macroprudential policy are included in a model, we still find a positive impact of both policies on bank Z-Score.

Date: 2024
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DOI: 10.1080/15140326.2023.2295732

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