The Transmission of Monetary Policy Through Conventional and Islamic Banks

This study investigates the comparative pass-through of policy rate to the retailprices, spillover of prices between Islamic and conventional banking systems, and theimpact of excess liquidity on these pass-throughs using data from interbank marketof Pakistan. The results suggest that the monetary policy shock affect retail prices ofIslamic banks similar to conventional banks, confirming the results of earlier studies.Moreover, there is a strong spillover between the prices of two systems; Islamicbanks are following (leading) the conventional banks in pricing the lending (deposit)products. Islamic bank has acquired advantage in the deposit pricing by taping thereligious depositors, which also may have promoted financial inclusion therebycontributing to the economic growth and improved income distribution in the society.Our findings suggest that the presence of excess liquidity have no effect on passthroughof policy rate in the Islamic system, which is contrary to the prevalent notion.However, excess liquidity significantly affects the spillovers of prices between thesystems. These results support the hypothesis that the Islamic banks are investing ininterest-based government securities indirectly via conventional banks. Our findingsmay help in enhancing the regulatory efficiency of the central banks and the conduct ofthe monetary policy in the countries where dual banking system exists.

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Mekanisme Transmisi Kebijakan Moneter dalam Mempengaruhi Inflasi dan Pertumbuhan Ekonomi di Indonesia

Economics Development Analysis Journal ◽

10.15294/edaj.v5i4.22183 ◽

2018 ◽

Vol 5 (4) ◽

pp. 460-473

Author(s):

Rifky Yudi Setiawan ◽

Karsinah Karsinah

Keyword(s):

Economic Growth ◽

Monetary Policy ◽

Banking System ◽

Transmission Mechanism ◽

Islamic Banks ◽

Monetary Policies ◽

Banking And Finance ◽

Financing Channel ◽

Dual Mandate ◽

Conventional And Islamic Banks

Sejak dikeluarkannya UU Bank Indonesia yang baru tahun 1999, Bank Indonesia telah diberi amanah sebagai otoritas moneter ganda yang dapat menjalankan kebijakan moneter konvensional maupun syariah. Sejak saat itu perbankan dan keuangan syariah berkembang pesat.Penelitian ini bertujuan untuk melihat alur transmisi kebijakan moneter dari sisi konvensional dan syariah dalam mempengaruhi inflasi dan pertumbuhan ekonomi, yang kemudian membandingkan keduanya. Hasil penelitian menunjukkan jalur konvensional memiliki alur sesuai dengan teori transmisi kebijakan moneter yang ada hingga mempengaruhi inflasi dan pertumbuhan ekonomi, sedangkan jalur syariah belum mempunyai alur yang sesuai dengan teori kebijakan moneter yang ada. Berdasarkan hasil VECM variabel syariah dapat menurunkan laju inflasi dan meningkatkan pertumbuhan ekonomi, sedangkan variabel konvensional dapat menurunkan laju inflasi akan tetapi menahan laju pertumbuhan ekonomi. Kemudian berdasarkan hasil FEVD jalur konvensional lebih berpengaruh dalam mengendalikan pertumbuhan ekonomi dan inflasi dengan masing-masing kontribusi sebesar 50,5% dan 19,97%, sedangkan jalur syariah masing-masing sebesar 29,07%. dan 19,47%. Since New Banking Act in 1998, Indonesia has implemented a dual banking system, where conventional and Islamic banks can operate side by side throughout Indonesia. With the implementation of Bank of Indonesia’s Act in 1999, Bank of Indonesia has a dual mandate to conduct both conventional and Islamic monetary policies. Since then, the Islamic banking and finance has been growing rapidly. The aim of this study is to see how transmission channel of monetary policy from side of conventional and Sharia channel to Influence Inflation and Economic Growth compare them both. The results showed the conventional channel is worked according to the theory of transmission mechanism of monetary policy that affect the final target inflation and economic growth, whereas Sharia channel does not worked according to the monetary policy. Based on the results of VECM on Sharia channel variable can reduce the inflation and increase the economic growth at the same time, while the variable of conventional channel can reduce the inflation but also reduce the economic growth at the same time. Then based on the results of FEVD conventional channel is more effective in controlling the economic growth and the inflation with contribution of 50.5% and 19.97%. while the Islamic bank financing channel with contribution of 29.07% and 19.47%.

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