Bulletin of Monetary Economics and Banking (BMEB) / Buletin Ekonomi Moneter dan Perbankan
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Exit Policy, Liquidity Normalization, and lts Implications on Central Bank Policy Transmission
Full text linkThe objective of this study is to determine the implications for the effectiveness of monetary policy transmission by examining the impact of specific policy toolkits in both Advanced Economy (AE) and Emerging Market (EM) countries during crises and during normalization (exit policy) upon crisis resolution. The analysis conducted using the VECM method on a number of AE and EM countries demonstrates that the response of bank interest rates (credit) is consistent with changes in policy rates and substantially diverges from Quantitative Easing (QE) policy in both the short and long term. However, the efficacy of monetary policy transmission appears to be diminishing following multiple crisis periods, including the Global Financial Crisis (GFC) and the COVID-19 pandemic. Furthermore, the efficacy of monetary policy transmission is higher in countries that first normalize liquidity than in those that directly increase policy rates, particularly in the aftermath of the COVID-19 pandemic
Early Warning Models for Anticipating Crisis: Insights from Sri Lanka
Full text linkThe study investigates how well early warning systems can predict currency crises in Sri Lanka, with special attention given to deviations in credit and business cycles as potential indicators. The research incorporates domestic and international factors, as well as credit and business cycle indicators, to anticipate currency crises. It uses multiple approaches such as exchange rate pressure index for crisis identification, signalling approach and logit regression for examining the predictive capacity of the indicators. Using quarterly data from 1997 to 2022, the study identifies seven crisis events in the country. Our empirical findings show that before the currency crises, credit cycle often deviates from business cycle. Moreover, the deviations of credit and GDP from their trends show considerable predictive strength, surpassing their respective level forms. Furthermore, global factors like Volatility Index and oil prices proved to be strong indicators, effectively signaling impending currency crises
Tracing the Literature on Central Bank Communication: A Bibliometric Review
Full text linkThis paper examines past and current research trends in central bank communication, as well as the thematic evolution and dominant themes in the field, through a bibliometric analysis of research works published in Scopus-indexed journals from 2006 to 2023. The study aims to map the intellectual structure of the field, identify key themes, and highlight influential work. Our key findings are as follows. First, the literature is classified into four primary domains: types of central bank communication, macroeconomic effects, communication channels, and analytical methodologies. Second, the main findings include the importance of formal communication, such as minutes of monetary policy meetings, in shaping market and economic expectations, and the increasing use of advanced textual analysis techniques. Additionally, despite efforts to engage with stakeholders via various channels such as speeches, press conferences, and social media, most research in this area focuses on formal monetary policy communication. Future research could explore informal central bank communication and the communication strategies of central banks in emerging markets
Revisiting The Quiet Life Hypothesis in The Indonesian Banking Industry
Full text linkThis study explores the Quiet Life Hypothesis (QLH) in different bank groups based on market-dominant and state ownership. The instrumental-variable regression results confirm the quiet life hypothesis at the industry level. At the group level, there is no different tendency to act quiet life between the dominant and non-dominant banks. On the other hand, the State-Owned Banks (SOBs) show a more potent act of quiet life than private banks. While the results for SOB were backed by theory and previous empirical studies, they raised the question of why the private banks conduct such “lazy” behavior
Financial Policy for a Green Economy in a Resource-Rich Emerging Economy
Full text linkThis paper analyzes policies aimed at fostering a green economy in a resource-abundant, megadiverse nation such as Indonesia. This study use Delphi and Analytic Network Process methodologies, grounded in the perspectives of regulators, academics, experts, and practitioners in the green economy, to identify the determinants of green financial policies, revealing that fiscal instruments are of paramount importance. Furthermore, both the case and the respondents are Indonesian. This underscores the necessity of instituting incentives in environmentally sustainable sectors and disincentives in carbon-intensive industries. Therefore, the suitable allocation of green budgets within fiscal policy is essential for addressing market failures and expediting the green transition. Moreover, prudential and monetary measures are essential. Asset-based prudential instruments may stimulate demand for green financing, while capital-based prudential instruments could enhance supply. Furthermore, the policy interest rate is crucial for sustaining price and financial stability during a seamless green transition
Testing Fractional Inflation Persistence in the West African Monetary Zone
Full text linkUnderstanding inflation persistence is of utmost significance for monetary policymakers in an era of heightened global economic interdependence and increased susceptibility to external shocks. Thus, this study examines the dynamics of inflation within the West African Monetary Zone (WAMZ), employing both conventional and innovative econometric methods, notably Fractional integration and Fractionally Cointegrated Vector AutoRegressive (FCVAR) models. Our analysis reveals a compelling paradox in the persistence of inflation. Conventional methodologies suggest a robust inertia with high persistence levels nearing unity. Conversely, Fractional Integration paints a more intricate portrait, indicating a dynamic, less persistent behavior with persistence values notably below 0.5. Crucially, our findings indicate fractional integration, underscoring the fractional aspect of inflation persistence, a facet effectively captured by the FCVAR model. These insights bear profound implications for policymaking. Acknowledging the fractional nature of inflation persistence requires a nimble and adaptable policy approach. The policy must address short-term inflationary pressures while recognizing the enduring legacy of past shocks. This nuanced perspective enables policymakers to devise resilient and effective policies, adeptly navigating the multifaceted terrain of inflation dynamics, thereby fostering both short-term stability and long-term economic resilience in the WAMZ region
RTGS Determinant & Sub-transaction Behavior during COVID-19 in Indonesia
Full text linkThis paper investigates external factors affecting Indonesia’s Real Time Gross Settlement (RTGS) transactions by applying machine learning regularization to identify key variables from a large dataset. A Vector AutoRegression (VAR) model analyzes dynamic links among RTGS sub-transactions, while Impulse Response Function (IRF) analysis examines system behavior during COVID-19 shocks. Using monthly data on 75 economic indicators, we show that 21 variables most accurately capture the movement of Bank Indonesia Real Time Gross Settlement System (BIRTGS) transactions. The study shows that monetary operation sub-transactions most strongly affect other BI-RTGS sub-transactions. Impulse Response Function analysis also finds that shocks in customer transfers and capital market transactions during COVID-19 can negatively impact fiscal soundness and financial stability
Endogenous Uncertainty: Does Investment Inefficiency Contributes to Uncertainty?
Full text linkWe investigate the endogenous relationship between firm-level investments and macro-level uncertainty for U.S publicly listed firms from 1996 Q1 to 2019 Q4. Based on the Vector AutoRegressive analysis, we learn that underinvestment tends to increase news-based Economic Policy Uncertainty (EPU); overinvestment increases macroeconomic uncertainty; and both under- and over-investment lead to increasing financial uncertainty. Furthermore, the information flow explanation is closely linked to a positive relationship between underinvestment and EPU. Meanwhile, the positive relationship between overinvestment and macroeconomic uncertainty is related to the excessive growth speculation explanation. The small (large) firm subsample analysis also reiterates the explanation of the information flow (excessive growth speculation)
Impact of Crises on Indian Financial Markets
Full text linkWe investigate the effect of crises on Indian financial markets including the short-term and medium-term money, government securities segments, equity and currency markets. Specifically, we study the effects of the COVID-19 pandemic, the Eurozone Sovereign Debt Crisis and the Global Financial Crisis on market returns, volatility and cross-correlations. We employ a (a) vector autoregressive model to analyse the effects of those shocks on returns and (b) multivariate ADCC-GARCH specification to examine the impact on conditional volatility and dynamic conditional correlation in the markets. We find significant effect of the Global Financial Crisis and the pandemic on the dynamics of the Indian financial markets