Analysis of Islamic Monetary Instruments and Islamic Bank Financing on Monetary Stability in Indonesia
Lavlimatria Esya- Deden Misbahudin Muayyad

Faculty of Economics and Businnes, Trisakti University

Abstract

This study aims to analyze the effect of Islamic monetary instruments and financing on monetary stability in Indonesia. This study uses the Vector Error Correction Model (VECM), Granger Causality Test, Impulse Response Function (IRF), and Forecast Error Variance Decomposition (FEVD) by first conducting a stationarity test, cointegration test, optimum lag test, VAR stability test, and causality test. The data used in this study is monthly secondary data from the variable amount of money in circulation (M2), Bank Indonesia Sharia Certificates (SBIS), Sharia Interbank Money Market (PUAS), State Sharia Securities (SBSN), and Islamic Banking Financing for the period January 2011.1 to December 2021.12. The results of the VECM Model research show that in the long term the instrument variables of SBIS, PUAS, and SBSN have a significant and positive effect on the Money Supply (M2). Meanwhile, Financing (FIN) has no significant effect on Money Supply. In the short term, only PUAS instruments are significant. The implication is that the monetary authority in setting policies must pay attention to its impact on yields of sharia monetary instruments because if the yield is increased it will certainly increase the amount circulating in the community, which in turn will affect monetary stability.

Keywords: Bank Indonesia Sharia Certificates, Sharia Interbank Money Market, State Sharia Securities, Financing, Vector Error Correction Model (VECM).

Topic: Green and blue Islamic Finance