The Role of Central Bank Rate on Credit Gap in Indonesia: A Smooth Transition Regression Approach

• 발행기관: 한국유통과학회
• 저자명: Indra SUHENDRA Cep Jandi ANWAR
• 간행물 정보: 『The Journal of Asian Finance, Economics and Business(JAFEB)』Vol. 8 No.1, 833~840쪽, 전체 8쪽
• 주제분류: 경제경영 > 경제학
• 파일형태: PDF
• 발행일자: 2021.01.30

영문 초록

This paper examines the effect of the interest rate set by Bank Indonesia on financial system stability as measured by the credit gap in Indonesia for quarterly data for the period 1976 Q1 to 2019 Q4. We suppose that the relationship between the Central Bank rate and the credit gap is non-linear. Hence, this study applies a smooth transition regression (STR) model to investigate the relationship between these variables. Our results are: first, by performing STR estimation we obtained a threshold level of Central Bank rate of 2.01. Second, a decrease in the Central Bank rate results in a reduction in the credit gap when the Central Bank rate is above or below the threshold level. The effect of the Central Bank rate is five times greater for the high regime than for the low regime. Third, we find evidence that the effect of the exchange rate, economic growth, inflation, and GDP per capita on the credit gap for the high regime is the opposite of the low regime. We suggest that policymakers need to keep the Central Bank interest rate low and stable so that the role of the bank as a financial intermediary remains stable and conducive to strengthening financial stability.

목차

1. Introduction

2. Literature Review

3. Data and Methodology

4. Empirical Results

5. Discussion

6. Conclusion and Recommendations

References

키워드

Central Bank Rate Credit Gap Exchange Rate Non-Linear Estimation