A Comparative Analysis of Asymmetric Transmission across Monetary Policy Regimes on Interest Rate Pass-Through in Indonesia’s Banking Sector
DOI:
https://doi.org/10.35877/454RI.qems3985Keywords:
Interest Rate Pass-Through, Monetary Policy Transmission, BI 7 Days Reverse Repo Rate, BI Rate, Indonesia, Error Correction Model, Mean Adjusted LagAbstract
This study examines the interest rate pass-through mechanism in Indonesia by analyzing how changes in the central bank policy rate are transmitted to commercial bank lending and deposit rates. The research focuses on two monetary policy regimes implemented by Bank Indonesia, namely the BI 7-Day Reverse Repo Rate and the new BI Rate introduced after December 2023. Using monthly time-series data from August 2016 to January 2025, the study employs the Error Correction Model and Mean Adjusted Lag to evaluate both the short-term and long-term dynamics of interest rate transmission. The Johansen Cointegration Test is also applied to identify the existence of long-run equilibrium relationships between the policy rate and banking interest rates. The results show that the pass-through process is asymmetric, with lending rates responding more quickly to policy rate increases than deposit rates do to policy rate decreases. The analysis also reveals variation in the speed and completeness of pass-through across the different policy regimes. Specifically, the new BI Rate demonstrates a shorter lag in transmission, suggesting improved responsiveness of the interest rate channel under the updated framework. These findings highlight the evolving nature of monetary policy effectiveness in Indonesia’s financial system and provide a better understanding of interest rate dynamics in an emerging market context.
References
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Cottarelli, C., & Kourelis, A. (1994). Financial structure, bank lending rates, and the transmission mechanism of monetary policy. IMF Staff Papers, 41(4), 587–623.
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Kwiatkowski, D., Phillips, P. C. B., Schmidt, P., & Shin, Y. (1992). Testing the null hypothesis of stationarity against the alternative of a unit root. Journal of Econometrics, 54(1–3), 159–178. https://doi.org/10.1016/0304-4076(92)90104-Y
Liu, M.-H., Margaritis, D., & Tourani-Rad, A. (2011). Monetary policy transparency and pass-through of retail interest rates. Journal of Banking and Finance 32(2008) 501-511
Liu, M.-H., Margaritis, D., & Tourani-Rad, A. (2011). Asymmetric information and price competition in small business lending. JBF Journal of Banking and Finance, 35(9), 2189-2196.
Mishkin, F.S. (2009). The Economics of Money, Banking, and Financial Markets : Pearson Education (US).
Mojon, B. (2000). Financial structure and the interest rate channel of ECB monetary policy. ECB Working Paper No. 40. European Central Bank.
Phillips, P. C. B., & Perron, P. (1988). Testing for a unit root in time series regression. Biometrika, 75(2), 335–346. https://doi.org/10.1093/biomet/75.2.335
Pindyck, R. S., & Rubinfeld, D. L. (2018). Microeconomics. Pearson.
Rousseas, S. (1985). A markup theory of bank loan rates. Journal of Post Keynesian Economics, 8(1), 135–144.
Warjiyo, P. (2017). Mekanisme Transmisi Kebijakan Moneter di Indonesia. Pusat Pendidikan dan Studi Kebanksentralan (PPSK), Bank Indonesia.
Wibowo, B., & Lazuardi, E. (2016). Uji Empiris Mekanisme Transmisi Kebijakan Moneter : Interest Rate Pass-Through Sektor Perbankan Indonesia. JEPI Jurnal Ekonomi dan Pembangunan Indonesia, 16(2), 187-204.
Zulkhibri, M. (2012). Monetary transmission mechanism in a dual banking system: Evidence from Malaysia. Journal of Economic Cooperation and Development, 33(4), 61–88.
Bernanke, B. S., & Blinder, A. S. (1988). Credit, money, and aggregate demand. American Economic Review, 78(2), 435-439.
Boeckx, J., Dossche, M., & Peersman, G. (2020). Unconventional monetary policy and its transmission: Evidence from the Global Financial Crisis. Journal of Monetary Economics, 111, 54-70. https://doi.org/10.1016/j.jmoneco.2020.04.004
Berend, J., & Prüser, H. (2024). The role of business cycles in monetary policy transmission: Evidence from the euro area. European Economic Review, 145, 103022. https://doi.org/10.1016/j.euroecorev.2024.103022
Brooks, C. (2008). Introductory Econometrics for Finance (2nd ed.). Cambridge University Press.
Checo, M., Grigoli, F., & Sandri, D. (2024). Identifying monetary policy shocks in emerging markets: Asymmetric effects and the role of global economic volatility. International Monetary Fund. https://www.imf.org/-/media/Files/Publications/GFSR/2024/April/English/ch3.ashx
Cottarelli, C., & Kourelis, A. (1994). Financial structure, bank lending rates, and the transmission mechanism of monetary policy. IMF Staff Papers, 41(4), 587–623.
De Bondt, G. J. (2002). Retail bank interest rate pass-through: New evidence at the euro area level. European Central Bank Working Paper Series, No. 136. European Central Bank.
De Bondt, G. J. (2005). Interest rate pass-through : empirical results for the euro area, German Economic Review, vol. 6, No. 1. Blackwell Publishing.
European Central Bank. (2000). The monetary policy transmission mechanism. Monthly Bulletin, July 2000. Diakses pada 23 Januari 2025, dari https://www.ecb.europa.eu
Federal Reserve Bank of New York. (n.d.). Repo and Reverse Repo Agreements. Diakses dari https://www.newyorkfed.org
MUC Consulting. (n.d.). BI 7-Day Reverse Repo Rate 2022. Diakses dari https://www.muc.co.id
Friedman, M., & Schwartz, A. J. (1963). A Monetary History of the United States, 1867-1960. Princeton University Press.
Gigineishvili, N. (2011). Determinants of interest rate pass-through: Do macroeconomic conditions and financial market structure matter? IMF Working Paper No. 11/176. Retrieved from https://www.imf.org
Gigineishvili, N. (2013). Monetary transmission mechanism in the East African Community: An empirical investigation. IMF Working Papers, WP/13/39.
Guerrieri, V., & Lorenzoni, G. (2021). Pandemic-induced liquidity traps and the effectiveness of policy tools. Journal of Economic Dynamics and Control, 122, 103635. https://doi.org/10.1016/j.jedc.2021.103635
Handayani, F. A., & Kacaribu, F. N. (2021). Asymmetric transmission of monetary policy to interest rates: Empirical evidence from Indonesia. Bulletin of Monetary Economics and Banking, 24(1), Article 2.
Hendry, D. F. (1995). Dynamic Econometrics. Oxford University Press.
Indonesia, B. (2023). BI Rate, Diakses dari https://www.bi.go.id/id/fungsi-utama/moneter/bi-rate/default.aspx
Indonesia, B. (2021). BI-7 Day Reverse Repo Rate (BI7DRR). Diakses dari https://www.bi.go.id/id/fungsi-utama/moneter/bi-7day-rr/default.aspx
Indonesia, P. R. (1999). Undang-Undang No. 23 Tahun 1999 tentang Bank Indonesia. Tambahan Lembaran Negara Republik Indonesia Nomor 3843.
Indonesia, P. R. (2004). Undang-Undang no. 3 Tahun 2004 tentang Perubahan Atas Undang-Undang Republik Indonesia Nomor 23 Tahun 1999 tentang Bank Indonesia. LEMBARAN NEGARA REPUBLIK INDONESIA TAHUN 2004 NOMOR 7.
Indonesia, P. R. (2009). Undang-Undang No. 6 Tahun 2009 tentang Penetapan Peraturan Pengganti Undang-Undang Nomor 2 Tahun 2008 tentang Perubahan Kedua Atas Undang-Undang Nomor 23 Tahun 1999 tentang Bank Indonesia Menjadi Undang-Undang. Lembaran Negara Republik Indonesia Tahun 2009 Nomor 7.
International Monetary Fund (IMF). (2025). Global Financial Stability Report: Geopolitical risks and emerging market economies. https://www.imf.org/-/media/Files/Publications/GFSR/2025/April/English/ch2.ashx
Johansen, S. (1992). Cointegration in partial systems and the efficiency of single-equation analysis. Journal of Econometrics, 52(3), 389-402
Kwiatkowski, D., Phillips, P. C. B., Schmidt, P., & Shin, Y. (1992). Testing the null hypothesis of stationarity against the alternative of a unit root. Journal of Econometrics, 54(1–3), 159–178. https://doi.org/10.1016/0304-4076(92)90104-Y
Liu, M.-H., Margaritis, D., & Tourani-Rad, A. (2011). Monetary policy transparency and pass-through of retail interest rates. Journal of Banking and Finance 32(2008) 501-511
Liu, M.-H., Margaritis, D., & Tourani-Rad, A. (2011). Asymmetric information and price competition in small business lending. JBF Journal of Banking and Finance, 35(9), 2189-2196.
Mishkin, F.S. (2009). The Economics of Money, Banking, and Financial Markets : Pearson Education (US).
Mojon, B. (2000). Financial structure and the interest rate channel of ECB monetary policy. ECB Working Paper No. 40. European Central Bank.
Phillips, P. C. B., & Perron, P. (1988). Testing for a unit root in time series regression. Biometrika, 75(2), 335–346. https://doi.org/10.1093/biomet/75.2.335
Pindyck, R. S., & Rubinfeld, D. L. (2018). Microeconomics. Pearson.
Rousseas, S. (1985). A markup theory of bank loan rates. Journal of Post Keynesian Economics, 8(1), 135–144.
Warjiyo, P. (2017). Mekanisme Transmisi Kebijakan Moneter di Indonesia. Pusat Pendidikan dan Studi Kebanksentralan (PPSK), Bank Indonesia.
Wibowo, B., & Lazuardi, E. (2016). Uji Empiris Mekanisme Transmisi Kebijakan Moneter : Interest Rate Pass-Through Sektor Perbankan Indonesia. JEPI Jurnal Ekonomi dan Pembangunan Indonesia, 16(2), 187-204.
Zulkhibri, M. (2012). Monetary transmission mechanism in a dual banking system: Evidence from Malaysia. Journal of Economic Cooperation and Development, 33(4), 61–88.
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Published
2025-06-09
How to Cite
Stefano, D., & Wibowo, B. (2025). A Comparative Analysis of Asymmetric Transmission across Monetary Policy Regimes on Interest Rate Pass-Through in Indonesia’s Banking Sector. Quantitative Economics and Management Studies, 6(3), 405–420. https://doi.org/10.35877/454RI.qems3985
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