Abstract
This paper focused to examine the interest-rates response specified by the Bank of Indonesia’s () to the world crude oil prices and foreign rate of interest. It examined monthly data which ranged from the period of August 2004 to November 2019. The difference equation model was employed for this estimation. The test findings indicated that there was a direct response of the rate of interest specified by to the world crude oil price and foreign rate of interest. The rate of interest retained by rose (fell) by 0.124 per cent in response to each one per cent rise (decline) in the world crude oil price. Moreover, the rate of interest rose (fall) by 0.073 per cent in response to each one per cent rise (decline) in the foreign rate of interest.
Highlights
In a process of production, oil is one of the major raw materials
Estimation Method The goal of this study is to examine the interest-rate response specified through Bank of Indonesia (BI), which was BI rate (DIR), to the variation in prices of world crude oil (OIL), in addition to the foreign rate of interest (FRI)
The research presumed that the domestic rate of interest (DRI) need a specific lag of time to react to variation in world crude oil prices (OIL) and foreign rate of interest (FRI)
Summary
In a process of production, oil is one of the major raw materials. Oil is required to operate power plants, transport, and machines (Adam et al, 2015; Rafiq et al, 2009). If consumers wait for an impermanent increase in prices of oil, and if they imagine that its impact on the productivity is greater in the short-run than it is in the long-run, in that case, they will be optimistic to raise their spending, and this will depressingly influence their willingness to save. This will increase the equilibrium level in the real-rate of interest (Brown and Yücel, 2002; Rasche and Tatom, 1977)
Sign-in/Register to view highlights & summary Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Schedule a callMore From: International Journal of Energy Economics and Policy
Disclaimer: All third-party content on this website/platform is and will remain the property of their respective owners and is provided on "as is" basis without any warranties, express or implied. Use of third-party content does not indicate any affiliation, sponsorship with or endorsement by them. Any references to third-party content is to identify the corresponding services and shall be considered fair use under The CopyrightLaw.
