THE IMPACT OF EXCESS LIQUIDITY ON MONETARY POLICY
This paper analyzes the excess liquidity especially on banking industry and its impact on monetary policy in Indonesia. We firstly investigate the determinants of bank behavior on their favor for excess liquidity both for precautionary motive and involuntary. Furthermore we determine the threshold between the low and high excess liquidity regimes. On the next step, this paper evaluates and compares the impact of excess liquidity on monetary policy between the two regimes. The first result shows that the excess liquidity on bank with their precautionary motive is significantly determined by the volatility of money demand, the volatility of economic growth, the bank cost of the bank, and also by the lag of excess liquidity, which conform its persistence. Secondly, using the Threshold-VAR approach, this paper shows the switching regime occurs in 2005 from low to high excess liquidity. Lastly, the excess liquidity reduces the effectiveness of monetary policy on controlling inflation
Bernanke, Ben S and Blinder, Alan S, 1992, “The Federal Funds Rate and the Channels of Monetary Transmission”,American Economic Review, American Economic Association, vol. 82(4), pages 901-21, September.
Bureau of Economic Research, 2008, “Menghadapi Ekses Likuiditas dalam Rangka Meningkatkan Efektivitas Kebijakan Moneter”, Miemo.
Henry et. al, 2010, “The Dynamics of Involuntary Commercial Bank’s Reserves in Trinidad and Tobago”, 42nd Annual Monetary Studies Conference Financial Stability, Crisis Preparedness and Risk Management in the Caribbean.
Kiki NindyaAsih, 2005, “Telaah Sederhana Kondisi Likuiditas Perbankan dan Implikasi Kebijakan,” Ulasan Pojok, vol II No. 10, Juni.
Krolzig, Hans-Martin, 1998, “Econometric Modeling of Markov-Switching Vector Autoregressions using MSVAR for Ox”(unpublished:Oxford, United Kingdom:University of Oxford).
Lawrence J. Christiano, Martin EichenbaumandCharles L. Evans, 1998, “Monetary Policy Shocks: What Have We Learned and to What End?”, NBER Working Papers 6400, National Bureau of Economic Research, Inc.
Magnus Saxegaard, 2006, “Excess Liquidity and the Effectiveness of Monetary Policy: Evidence from Sub-Saharan Africa”, IMF Working Papers 06/115, International Monetary Fund.
N. Joko Prastowo and Andry Prasmuko, 2008, “Penurunan Portfolio SBI, Pertumbuhan Kredit and Kondisi Likuiditas Perbankan,” Mimeo.
P.R. Agenor, J. AizenmanandA. Hoffmaister, 2000, “The Credit Crunch in East Asia: What can Bank Excess Liquid Assets Tell us?”mNBER Working Papers 7951, National Bureau of Economic Research, Inc.
Stephen O’Connell, 2005, “A Floor and Ceiling Model of U.S. Output”, Journal of Economics Dynamic and Control, Vol. 21, pp. 661-95.
Buletin Ekonomi Moneter dan Perbankan / Bulletin of Monetary Economics and Banking is licensed under a Creative Commons Attribution-NonCommercial 4.0 International License.