Is Lean Against The Wind Theory Works In Indonesia Centrak Bank Policy

Abstract

This study aims to analyze interrelationship of monetary policy shock, Islamic banking asset, asset prices and economic performance. This study examines the effectiveness of monetary policy and its transmission in Indonesia using monthly data from 2003-2020, variables such as 7-days (reverse) repo rate (BI rate), Sharia SBI (SBIS), Money Asset (MASET), Financing (FIN), Interest Rate Equivalence (RFIN), Composite Stock Price Index (IDX), Indonesia Sharia Stock Index (IDXS), Bond Price Index (BOND), Residential Property Price Index (HPI), Gold (GOLD), Inflation (INF) and Index Industrial Production (IPI) was analyzed in the Structural Vector Autoregression (SVAR) model with block-exogeneity and non-recursive in modeling monetary policy shocks in Indonesia. SVAR estimation is carried out on 13 variables at the first difference with a lag length of 1, thus 13 coefficients will be obtained for each equation, or overall obtained 169 (13 x 13 matrix) equation coefficients with a minimum restriction of 78 in order to be exact-identified., here are added some more restrictions so that the model is over-identified.

The results of the SVAR analysis show that there is a monetary transmission through Islamic monetary variables and asset prices even though it only shows for a short time. Bank Indonesia does not react too much when there is an increase in asset prices, and asset prices also do not respond when there is a monetary policy shock. This is characterized by an impulse response that tends to quickly return to its original balance, there is no permanent change when there is a shock on both sides. The results of this study also provide a novelty regarding the ineffectiveness of the lean against the wind, where monetary policy is indifferent to volatility of asset price, which means neither lean against the wind nor clean up the mess

Generally sharia banking asset portfolio affect asset price and a small effect on the price of gold. This proves that, not always Islamic banking assets are allocated to Islamic shares and real back assets. Islamic banking still plays a role in assets price volatility and non-Islamic common stock. Although assets such as property, bonds and gold are not affected by the portfolio, if the Islamic bank's assets are in assets that contain speculation, the Islamic principles are still not perfectly practiced.