The Role of Macroprudential Policy to Manage Exchange Rate Volatility, Excess Banking Liquidity, and Credits

Abstract

This paper analyzes the macroprudential policy by the central bank to maintain the financial system stability. Using panel data of the government banks, foreign, private, joint venture, and regional development banks during 2004- 2012, we employ Vector Autoregressive Exogenous (VARX) and event analysis method and find that the level of exchange rate volatility decrease after the implementation of the one month holding period, six-month holding period and net open position policies. However, for the nominal exchange rate, these policies are not effective. In aggregate the reserve requirement plus loan to deposit ratio policy is effective to raise the bank credit allocation. Furthermore, the impact of the primary reserve policy is very limited to lower the liquidity of the economy; while at the same time the flow of foreign capital comes into very heavy

Evaluation Of Macroprudential Policy On Credit Growth In Indonesia: Credit Registry Data Approach

“…GWM + LDR instrument also show the same result with a probability value of 0.00 smaller than the alpha value ( = 1%), which indicates that GWM + LDR can give effect to credit growth. Pramono et al, (2015); Purnawan and Nasir (2015) affirm that the GWM + LDR instrument is effective in lending growth. Besides, the simulation on model 2 also shows the probability of a GWM + LDR of 0.00 is less than the alpha value ( = 1%) which gives meaning to the LDR + LDR instrument to mitigate the procyclical credit growth.…”

“…However, the effectiveness of macro-prudential policy instruments following the economic conditions that occur, so it cannot be entirely influential. As in the research conducted by Purnawan & Nasir, (2015) which explains the macro-prudential policy applied by the economic growth and financial system stability condition. Table 2 contributes an overview of the effectiveness of macroprudential policies in giving effect to credit growth and credit procyclicality.…”

“…Indonesia was affected by the global crisis caused by financial sector instability in 2008/2009. The source of the financial sector instability derived from the credit bubble that turned into a global crisis and led to a drastic reduction in economic growth (Claessens and Kose, 2013;Purnawan and Nasir, 2015). Therefore, the booming credit growth could trigger a global crisis.…”

“…This anomalies based on economic fundamentals and financial system patterns in each different country have an impact on the implementation of macro-prudential policy (Alegria, et al, 2017;Claessens and Kose, 2013;Zhang and Zoli, 2016). Pramono et al (2015); Purnawan and Nasir (2015);Utari, et al (2012) explains that macro-prudential policy as Countercyclical Buffer (CCB), Statutory reserve requirement (GWM) and GWM + Loan Deposit Ratio (GWM + LDR) to give effect to mitigating credit growth is procyclical in Indonesia. Similar results are shown in the study Drehman and Tsatsaronis (2014) and Fendoğlu (2017) through the instrument Countercyclical Buffer (CCB) and the Loan to Value (LTV) on macro-prudential policy to be effective in mitigating the risk systemic credit growth in emerging market countries.…”

Analisis Dampak Bauran Kebijakan Moneter Dan Makroprudensial Terhadap Stabilitas Harga Dan Stabilitas Sistem Keuangan Di Indonesia

“…Penelitian Wimanda et al (2014) Uysal 2016melakukan penelitian dengan studi kasus Turki yang telah menerapkan bauran kebijakan moneter dan makroprudensial menunjukkan hasil bahwa bahwa gabungan kedua kebijakan tersebut mampu membantu menguatkan stabilitas harga, keuangan, dan makroekonomi. Purnawan & Nasir (2015) melakukan penelitian untuk melihat peran kebijakan makroprudensial dalam mengontrol volatilitas nilai tukar, likuiditas, dan kredit bank. Hasil penelitian menunjukkan bahwa tingkat volatilitas nilai tukar menurun setelah penerapan periode 1MHP dan 6MHP enam bulan dalam kebijakan kurs mengambang, namun untuk nilai tukar nominal kebijakan ini tidak efektif.…”