Three Essays on Banking, Monetary Policy, and Regional Economy in Indonesia Public Deposited

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  • March 20, 2019
  • Wijoseno, Atet
    • Affiliation: College of Arts and Sciences, Department of Economics
  • This dissertation is comprised of three essays. In the first essay, using monthly panel data, we study how changes in the BI rate and reserve rate affect bank portfolio allocation in loans, securities, interbank assets, and deposits. We estimate the aggregate policy impacts and test whether the impacts vary across periods around the 1997 Asian crisis. Further, we analyze if the policy impacts differ between banks with different size of assets, level of capital, and type of ownership. The findings show that an increase in the BI rate and reserve rate have different effects on each bank portfolio items, across bank groups and sub-periods. The impact of an increase in the BI rate is to decrease the aggregate share of bank assets in securities, deposits, and interbank assets. In addition, we find mixed evidence on how loans respond to contractionary BI rate shocks across sub-periods. The aggregate impact of an increase in the reserve rate is to reduce bank asset allocation in loans, interbank market, and deposits, while increasing securities-to-asset ratio. We find in particular that an increase in the reserve rate has a notably stronger contractionary effect on bank loans than that of the BI rate. Policy actions targeted at reducing the supply of loans are more effective in curbing loan growth in Indonesia. In the second essay, we study the transmission channels of monetary policy at the regional economy level in Indonesia. The findings show that the magnitude and duration of the impact of monetary policy shocks vary across provinces providing evidence of the asymmetric regional effects of monetary policy. Given similar shock, we find that the response of bank loans and deposits vary across regions suggesting the existence of interest rate and credit channels at the regional level. In addition, we also find different responses of trade openness, housing prices and consumer expectations across regions providing evidences of the regional exchange rate, asset price and expectation channels. Further analysis shows that the shares of trade and mining are statistically significant in explaining the asymmetric provincial responses to monetary policy shocks. We find that the impact of the monetary policy shocks are more muted for provinces which share land borders with foreign countries. This result implies that geography is a key factor in explaining the asymmetric provincial responses. Finally, in the third essay we construct a banking model to demonstrate the impact of 1997 Asian crisis on banks in Indonesia. We study how banks adjust their portfolio allocation in response to changes in the reserve rate, capital requirement, and loan demand. Specifically, we are interested in testing the hypothesis on whether banks are more sensitive to policy changes in the more stringent, policy regulated post-crisis environment. We estimate the model based on the Indonesian bank panel dataset from April 1993 to July 2014. Our findings show that an increase in the reserve rate and capital requirement have larger impact on portfolio reallocation post 1997. This paper, in part, contributes to the efforts of better identifying bank behavior in Indonesia by providing a theoretical model as a means to study bank portfolio reallocation in response to policy changes.
Date of publication
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Rights statement
  • In Copyright
  • Ghysels, Eric
  • Francis, Neville
  • Parke, William
  • Hill, Jonathan
  • Chari, Anusha
  • Doctor of Philosophy
Degree granting institution
  • University of North Carolina at Chapel Hill Graduate School
Graduation year
  • 2016

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