Abstract
The essence of the Islamic economic system is strengthening the real sector. This research aims to analyze the effect of Islamic monetary instrument (such as SBIS, PUAS and Islamic bank financing in the real sector. This research uses the Vector Error Correction Model (VECM) as a method of analysis. The finding revealed that based on the VECM estimation test, in the long term SBIS and Islamic bank financing has a positive effect on the Industrial Production Index (IPI). Meanwhile, PUAS has an adverse effect toward Industrial Production Index (IPI). Besides, based on impulse response function (IRF) test, the shock of SBIS and PUAS responded positively by Industrial Production Index (IPI). Then based on the result of FEVD test, the variable of PUAS in the model of this research has the most significant contribution toward Industrial Production Index (IPI).
Highlights
The development in the real sector should drive an economy
The data used are: (1) Industrial Production Index (IPI) level data obtained from the Central Bureau of Statistics as a proxy for economic growth or representation of the real sector; (2) The data of fees for the sharia certificate of Bank Indonesia (SBIS) obtained from BI SEKI, the yield rate data on inter-sharia bank money market (PUAS) were obtained from SEKI BI; (3) The total data on Islamic bank financing was obtained from Islamic Banking Statistics
The data analysis method used in this study is the VECM method to analyze the role of Islamic bank financing and sharia monetary instruments, namely Sharia Certificate of Bank Indonesia (SBIS) and PUAS on output represented by the Industrial Production Index (IPI) level
Summary
The development in the real sector should drive an economy. The monetary sector should be able to support the growth in the real sector (Wisandani et al, 2017). Sugianto et al (2015) stated that in Islamic economics, the monetary sector must have a direct relationship to the real sector. On the Islamic economic system, there must be a balance between the real sector and the monetary sector. The real sector is a representation of economic activities that occur in society. The imbalance between these two sectors could lead to the bubble economy, which could have an impact on the economic crisis
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