Dynamic Analysis of Islamic Bank and Monetary Instrument towards Real Output and Inflation in Indonesia

Author (s): 
Qurroh Ayuniyyah, Irfan Syauqi Beik and Laily Dwi Arsyianti

Islamic banking industry in Indonesia has demonstrated positive growth for the last two decades. This paper attempts to investigate the impact of this convincing performance of Islamic bank on two major macroeconomic variables, namely output and inflation, by using VAR/VECM analysis. The research utilizes monthly data of industrial production index, consumer price index, total Islamic deposit and its return, total Islamic financing and its return, money in circulation and Islamic Central Bank Certificate, from January 2004 until December 2009. The findings suggest that all Islamic variables have significant impact on the real sector growth. As for inflation, the study finds that none of the variables affect the inflation. However, the use of interest rate as benchmarking for Islamic deposit and Islamic Central Bank Certificate is not suggested.

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