Buletin Ekonomi Moneter dan Perbankan
Vol 14 No 3 (2012): JANUARY 2012

THE IMPACT OF EXCESS LIQUIDITY ON MONETARY POLICY

Bathaluddin, M. Barik (Unknown)
Adhi P., Nur M. (Unknown)
Wibowo, Wahyu Ari (Unknown)



Article Info

Publish Date
30 Mar 2012

Abstract

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 inflationKeywords: Excess liquidity, Threshold VAR, monetary policy transmission mechanism.JEL Classification: B23, E5

Copyrights © 2012






Journal Info

Abbrev

BEMP

Publisher

Subject

Description

The Buletin Ekonomi Moneter dan Perbankan/Bulletin of Monetary Economics and Banking (BMEB) is an international peer-reviewed journal. This is a quarterly journal, published in January, April, July and August. The BMEB focuses on a broad range of topics covering monetary economics, banking, ...