These empirical findings bring about policy recommencations for better understanding on the risk behavior in the banking sector, as well as integration beetween monetary dan financial sector policies. Third, pro-cyclical behavior of credit and risk variables reverses the effect of loose monetary policy stance, and there is an indication of asymmetric effect between tight monetary policy and loose monetary policy in Indonesian economy.
Second, risk variables and credit tend to move pro-cyclicalyl while monetary policy stance tends to a-cyclical. First, there is early indication that risk taking channel in the monetary policy transmission mechanism exists in Indonesia during analysis period. Some empirical results emerge from this preliminary study. Vector Error Correction Model are applied to test the significance of interaction between risk variables and monetary policy stance in the short run dynamics of credit behavior around its long-run cointegration with real GDP. Referring Bernanke and Blinder (1988) modified model for analyzing the bank credit behavior, we develop an empirical model to test the role of risk behaviour in monetary policy transmission mechanism.
This study explores interconnections between risk behaviour in the financial sector, particularly banking sector, with monetary policy stance.
