Nutriana, Reficha (2019) ANALYSIS OF SHARIA AND CONVENTIONAL TRANSMISSION MECHANISM OF MONETARY POLICY THROUGH THE FINANCIAL ASSET PRICE CHANNEL TO INFLATION IN INDONESIAPERIOD OF 2014 – 2018. D4 Diploma thesis, University of Darussalam Gontor.

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Abstract

The focus of the implementation of monetary policy in Indonesia according to Law No.23 of 1999 which has been changed to Law No. 3 of 2004 concerning monetary policy states that Bank Indonesia is given a mandate as a dual monetary authority that can carry out both sharia and conventional monetary policies. The sharia monetary system formed in Indonesia is now expected to be a solution to the failure caused by the conventional monetary system because of those of the interest rate as the main instrument. This purpose of the study to analyze the transmission mechanism of monetary policy in Indonesia through Sharia and Conventional channels in controlling inflation. The second objective is to analyze the two monetary lines (sharia and conventional), which are is better in influencing inflation stability. The analytical tools used in this study are Vector Auto Regression (VAR) and VECM (VectorError Correction Model). The data used in this study are the 2014 time series data (01) -2018 (12). By using two systems of equations to explain the conditions of the four markets which are the stock market, money market, bond market, and foreign exchange market. The variables used are SBI (Bank Indonesia certificate) (conventional) and SBIS (Sharia Bank Indonesia Certificate) as a proxy for monetary policy, (Interbank Money Market), and PUAS (Islamic Interbank Money Market) to represent financial asset prices in the money market, IHSG (Composite Stock Price Index) and JII (Jakarta Islamic Index) to represent asset prices in the stock market, Sukuk and bonds to describe the price of assets in the bond market and the foreign exchange market of the rupiah exchange rate against the USD.The results on the estimation of VECM (Vector Error Correction Model) show that the variables in the model I (sharia) have several significant variables in the short term and long term to decrease inflation, while in the model (conventional) only on the long-term variable that is significant for inflation. Followed by estimation results of FEVD (forecast Error Variance Decomposition) shows that in the model I (sharia) contributes positively to the decrease in increase by 12.83% while the proportion in model II (conventional) contributes conventional variables to only 6.65%. So it can be concluded that Sharia monetary policy can provide better in reducing the inflation rate.Therefore, The role of the financial asset price channel in the transmission mechanism of sharia monetary policy can be proven again by this study, and at the same time shows that there is a close link between financial markets and real markets. Thus the role of the government and Bank Indonesia and the Financial Services Authority (OJK) to provide banking education and capital markets to the public, given the financial markets in Indonesia still have enormous potential. Keywords: Transmission mechanism of monetary policy, sharia monetary, asset price channel, inflation, Vector Error Correction Model

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