Monetary Policy and Inflation Targeting Framework in Indonesia Dual Banking System

Abstract

Since 1990 the use of inflation as a nominal anchor used as the main target of monetary policy began to be an option for central banks in several countries. The new monetary policy framework is then known as Inflation Targeting Framework (ITF). This study tries to look at some important variables that affect the inflation rate within the framework of the Inflation Targeting Framework concept using Vector Error Correction Model. The results of data processing using VECM analysis can determine the behavior of Bank Indonesia Rate (BI Rate), Money Supply, Interbank Money Market (PUAB), Sharia Interbank Money Market (PUAS), and Sharia Bank Indonesia Certificates (SBIS). These variables significantly affect the inflation rate. The results of this study can provide important information for decision makers and academics as an evaluation of the application of ITF based on its application in Indonesia.