Vector Error Correction Model Estimation Research Articles

Kausalitas Antara Variabel Makro dan Stunting di Sumatera Barat Periode 2021 -2023

This research intends to look at the causal relationship between stunting, unemployment, poverty, income inequality, human development index in West Sumatra for the period 2021 - 2023. The type of data used is secondary data in the form of panel data from the Central Statistics Agency (BPS) and the Indonesian Nutrition Status Survey from 2021 to 2023 mapping of 19 regencies/cities in West Sumatra. The data analysis used is vector auto regression analysis (VAR) and vector error correction model (VECM). In inductive analysis there are several tests, namely Optimum Lag Test, Model Stability Test, Johansen Cointegration Test, Granger Causality Test (Granger Causality), VECM Estimation, Impulse Response Function (IRF) Analysis, Forecast Error Variance Decomposition (FEVD) The results of this study show that there is a significant relationship between the human development index and income inequality. There is a significant relationship between unemployment and poverty and income inequality significant relationship between stunting and HDI, poverty, income inequality and unemployment.

The Impact of Cryptocurrency and Electronic Money Use On The Circulating Money Supply and Monetary Stability in Indonesia

The purpose of this research is to analyze the long-term and short-term impacts of the use of cryptocurrency and electronic money on the money supply (M2) in Indonesia, as well as to analyze the long-term and short-term impacts of the use of cryptocurrency and electronic money on monetary stability (exchange rates) in Indonesia. The research method used is quantitative descriptive analysis with the Vector Error Correction Model (VECM) using the Eviews application and secondary data in the form of monthly data from 2011 to 2023 obtained from the official websites of Bank Indonesia and Finance. This study utilizes data on cryptocurrency transaction values and electronic money transaction values in Indonesia by analyzing the VECM model, which can observe the long-term and short-term impacts of the use of digital money on the money supply and monetary stability, in this case, viewed through the Indonesian exchange rate. The research results indicate that there is a one-way causality between electronic money and cryptocurrency, but not the other way around, and there is a one-way causality between the money supply and cryptocurrency, with the money supply as the dependent variable influencing cryptocurrency. The results of the VECM estimation indicate that in the long term, electronic money has a negative and sifnificant impact on the money supply. Meanwhile, the short-term estimation shows that both cryptocurrency and electronic money significantly influence the money supply, but their effects are dynamic and vary based on different lags. The long-term estimation with the exchange rate as the dependent variable shows that cryptocurrency does not have a significant impact on the exchange rate, while in the short term, both cryptocurrency and electronic money have a negative and significant effect on the exchange rate.

Internal rates of return for public R&D from VECM estimates for 17 OECD Countries

Public R&D stimulates domestic private and foreign private and public R&D, together enhancing technical change and thereby GDP. In this paper, we evaluate vector-error-correction model (VECM) estimations and simulations of a companion paper in regard to internal rates of return (and related aspects) to additional public R&D of OECD countries and compare them to the macroeconomic literature. We show (i) internal rates of return to public R&D shocks, and (ii) the related payback periods, gain/GDP ratios, and sums of discounted (at 4%) gains. Fourteen of 17 countries show high internal rates of return, short payback periods, and high gains/GDP ratios from positive public R&D shocks if projects are stopped when gains get negative. Three countries show crowding-out effects and require (initial) reductions of public R&D before showing positive results.

Overshoot Nilai Tukar Rupiah Terhadap Us Dollar pada Masa Pandemi Covid-19

This study aims to analyze overshooting exchange rates Rupiah towards US Dollar during the COVID-19 pandemic period. The data used is monthly data from January 2019 to December 2022. Several variabels employed are exchange rate ,interest rate, inflation, Gross Domestic Product and money supply The analysis methods used include unit root test, lag test, stability test, cointegration test, Granger causality test, Vector Error Correction Model (VECM) estimation, Impulse Response Function (IRF), and Variance Decomposition. The results of the research showed that interest rate and JUB affects significant RP/USD in the long term, whereas in the short term JUB had significant, affects on the exchange value of RP/USD. The VECM estimation results show a significant cointegration relationship, and the response of the variables to the shock reveals the presence of overshooting symptoms. The contribution of these variables to the variability of the Rupiah/USD exchange rate is also identified through the Variance Decomposition test. In conclusion, overshooting in Indonesia during pandemic Covid-19 is occur, by characterizing JUB shock in short term.

Fiscal Policy and Economic Growth Nexus: Evidence from Zambia

Purpose: This study examines the short-run and long-run impact of the expansionary fiscal policy on economic growth in Zambia from 1991 to 2021. Materials and Methods: The study employs the Vector Error Correction Model (VECM) and Auto Regressive Distributed Lag (ARDL) Models to examine the short-run and long-run impact of total public expenditure, total tax revenue and total public debt time series data on the gross domestic product (GDP) of Zambia from 1991 to 2021. The Keynesian theory informed our study, which presupposes that the unemployment problem might be solved by boosting government spending on consumption and that government spending was an exogenous factor that contributed to economic growth (Keynes, 1936; Singh & Sahni, 1984). Findings: Both the VECM and ARDL Models show the existence of statistically significant long-run cointegration among public expenditure, external debt, tax revenue and GDP. Specifically, VECM estimates show that for a 1% increase, Tax revenues have a positive long-run significant effect on Zambia’s economic growth of 3.36%, while external debt and public expenditure have significant negative effects on the economic growth of 1.17% and 0.003% in Zambia respectively. The ARDL model estimates indicate that, in the short run, an increase in tax revenue of 1% increases GDP growth by 1.92%, while a rise in government expenditure and external debt by 1% results in a decline in Zambia’s economic growth by 0.003% and 6.14% respectively. Implications to Theory, Practice and Policy: Given the foregoing findings, the therefore study recommends that the Government of Zambia should widen the tax base to mobilize more tax revenues and reduce the budget deficits emanating from high government expenditures. External public debt should also be reduced.

Monetary policy transmission mechanism in Indonesia period 2002: Q1 – 2020: Q4: interest rate and asset price channel

This study aims to determine and analyze the effect of the monetary policy transmission mechanism on the interest rate channel and asset prices in Indonesia in achieving the ultimate goal of price stability throughout the period 2002:Q1 – 2020:Q4. This study uses secondary data related to policy interest rate variables, operational target interest rates, information variables, and final target variables for each channel of the monetary policy transmission mechanism. The analytical tool used in this research is the Vector Error Correction Model (VECM) which is processed using statistical software Eviews 10. The results of the analysis on the monetary policy transmission mechanism model of the interest rate channel indicate that in the short term, investment lending variables have a negative and significant effect on The CPI, meanwhile, the investment credit interest rate variable has a negative and significant effect. The results of the long-term analysis of the monetary policy transmission mechanism model of the interest rate channel show that the interest rate for investment credit, consumption credit, and the BI7DRR interest rate have a positive and significant effect on the CPI, while the variables for consumption credit interest rates, investment credit distribution, and real GDP negative and significant effect on the CPI. The results of the VECM analysis for the monetary policy transmission mechanism model for asset price channels confirm that the positive Error Correction Term (ECT) coefficient indicates that there is no adjustment mechanism towards long-term equilibrium. The results of the classical assumption test for the monetary policy transmission mechanism model of asset price channels also confirm deviations in the assumptions of normality and heteroscedasticity. Therefore, the economic interpretation of the VECM estimation on the monetary policy transmission mechanism model of the asset price channel cannot be carried out and requires the use of other analytical tools to produce a valid model .

Econometric modelling of Nigeria economic growth: A VECM and impulse response functions

Economic growth characterizes the quantitative changes that occur in economic variables and attributed to overall increase in production per capital. This study examined the economic impact of exchange rate, foreign direct investment, inflation rate and the trade balance on Nigeria GDP over the period of 1970-2022. The dynamic causal association among the selected macroeconomic variables and economic growth in Nigeria was evaluated via the implementation of vector error correction model (VECM) procedures and impulse response functions. The VECM estimates and the impulse response shows that the response of GDP to inflation and exchange rates is positive while the response of GDP to a one period shock to the trade balance yields a marginal negative depreciation. The result justifies that the place of Exchange rate, Inflation and Trade Balance to Nigeria economic growth cannot be overstated. The results of the work suggest that to promote stable and sustainable economic growth, policy makers should lay more emphasis on encouraging stable and reasonable exchange rate. Also, the work recommends that to promote economic growth and keep inflation low in Nigeria, Anti- inflationary policies should be accompanied to attract foreign investors and frustrate capital fleeing from the country.

Dynamic Asymmetric Causality of Bitcoin’s Price-Volume Relation

Bitcoin has attracted incessant attentions in recent times. Studies have completed models to examine the relationship between Bitcoin and other multiple attendant variables. This paper considers a simple and direct price-volume relation. The paper offers causality evidence according to the dynamic asymmetric causality test. Based on available monthly data spanning 2010:M7-2022:M10, the paper shows that Bitcoin price and volume are integrated, both been I(0)’s. Moreover, the paper discloses the short- and long-term price-volume behaviors of Bitcoin using the cointegration test and vector error correction model (VECM). Taken together, the study first confirms long run relations and presents the estimates of the parsimonious VECM. The results show short run evidence of positive price-volume relations, and in the long run, the disequilibria are as well corrective and mean reversing. The outcomes of the Hatemi-J’s causality testing suggest likely evidence of bidirectional causality between the positive and negative fragments of the shocks of Bitcoin price and volume during the periods.

Long and Short-Run Effects of Climate Change on Boro Rice Productivity: An Empirical Evidence from Bangladesh

This study endeavors to examine the effect of climate change on Boro rice productivity in Bangladesh. Unit root, Co-integration and Vector Error Correction Model estimation technique are applied to measure the climate-crop yield interrelation on the basis of country level time series data for the period 1972-2019. Average maximum and minimum temperature, rainfall and humidity are used to attribute variables for climate change. The result of vector error correction model denotes that both in the long-run and short-run, average maximum temperature, average total rainfall and humidity negatively effect on Boro rice productivity in Bangladesh respectively. On the other hand, Average minimum temperature is positively effect on Boro rice productivity in the short-run. Fertilizer and irrigation have positive effect on Boro rice productivity in the short-run respectively. Conversely, labor has robust negative effect on Boro rice productivity in the short-run in Bangladesh agriculture. Policy maker should develop policies to mitigate temperature and introduce heat tolerant rice varieties and adaptation measure to sustain the Boro rice productivity in Bangladesh.

Fiscal Policy and Economic Stabilization Dynamics in Sub-Saharan Africa: A New Evidence from Panel VEC Model and Hodrick-Prescott Filter Cyclical Decomposition

This study investigates the dynamics of fiscal policy and economic stabilization using a panel dataset from Sub-Saharan Africa (SSA) sourced from the World Development Indicators (WDI) between 1985 and 2019. The study utilized a panel vector error correction model (VECM) rather than panel vector autoregression (PVAR) after ascertaining the presence of cointegrating equations (existence of long-run relationships). Also, both homogenous and heterogeneous panel unit root processes were utilized to test the panel data’s stationarity before estimating the panel VECM. Again, the cyclical decomposition (Hodrick-Prescott Filter) is adopted in examining the effect of fiscal policy on economic stabilization across countries in SSA. Essentially, the VECM estimation result reveals that both government expenditure (GEX) and total reserves (TRS) have significant long-run relationships but are not substantial enough to stimulate economic growth and stability in the short run. Simultaneously, the Hodrick-Prescott Filter’s (HP-filter) cyclical decomposition confirms the non-stability of economic growth and stabilization in SSA over time. In line with other numerous policy recommendations, the SSA countries’ governments should improve on the policies targeted toward controlling the financial (fiscal) leakages to ensure more robust economic stabilization in the region through increases in total revenue and reserves both in the short and long-run.JEL Classification Codes: E62, E63, F38, F41, H50.

Effect of bank credit on agricultural gross domestic product

Purpose. This study aimed to provide the central bank of Bangladesh with some empirical data on the impact of bank agricultural credit on agricultural output as a priority sector lending. 
 Methodology / approach. Econometric analysis is applied to discover the nature of the relationship between banks’ agricultural credit and agricultural gross domestic product (GDP) and to find the impact of bank agricultural credit on agricultural output in Bangladesh. Data are extracted from secondary sources, i.e., Bangladesh Bank, Bangladesh Bureau of Statistics, World Bank, and Ministry of Finance for 1991 to 2018. Time-series data are analyzed using the Augmented Dickey–Fuller (ADF) unit root test and the Johansen cointegration test and later examined with Vector Error Correction Model (VECM).
 Results. The Augmented Dickey–Fuller unit root test confirmed that the variables were non-stationary at their level data and became stationary after taking their first difference value. Since the variables are integrated at I(1), we performed the Johansen Co-integration test. Subsequently, one co-integration equation was found, and Vector Error Correction Model estimation was done afterwards. According to the results of VECM estimation, bank agricultural credit, pesticide consumption, and use of cropped areas have long-run relation with agricultural output. 
 Originality / scientific novelty. This study reveals the nature of relationship and assessment of the impact of bank credit on agricultural GDP with empirically valid techniques and tools. In this context, the data from Bangladesh remains very rare. Moreover, for those works which have been done in the context of Bangladesh, appropriate methods and techniques are not always inherent. Hence, this significant research gap is addressed in our present study. Thus, we expect that the findings of this study from Bangladesh based on empirically valid standard techniques can incrementally contribute to the existing literature.
 Practical value / implications. Findings of this research, can be used as an information basis by the central bank of Bangladesh. Based on the findings of this research, Bangladesh Bank should initiate new policies and programs regarding agricultural credit for the projected increase in agricultural GDP in Bangladesh.

Analisis Kasualitas Indikator Makro Kesejahteraan Masyarakat Provinsi Banten Tahun 2017-2021

Community welfare is the main goal of economic development. Concrete efforts made by the Provincial Government of Banten continue to be made to improve welfare in the region. This study aims to determine the short-term relationship and long-term variables of community welfare indicators between districts/cities in Banten Province in 2017-2021. This type of research is quantitative with a descriptive approach, in which the research is systematically arranged with numbers processed from the results of secondary data sourced from the Central Bureau of Statistics, Bappeda, and Bappenas. Finally, this data measurement uses the Vector error correction model (VECM) method with test stages: (1) Stationarity Test, (2) Stability Test, (3) Optimum Lag Test, (4) Cointegration Test, (5) Granger Duration Test, and (6) VECM Estimation. The results of this study are (1) All data on the variables of this study are stationary at the 1st Difference level, (2) There is a short-term and long-term relationship between variables in this study characterized by cointegration, (3) There is a one-way causal relationship between Education and poverty, (4) There is a one-way causal relationship between Education and HDI, (5) There is a two-way causal relationship between Poverty and Unemployment, (6) There is a one-way causal relationship between Poverty and HDI, (7) There is no causal relationship between Unemployment and HDI, (8) Finally, measurement of indicators that are relevant to people's welfare.

Inflation Through the Transmission Of Islamic And Conventional Monetary Policy In Indonesia

This study aims to identify the transmission of Islamic and conventional monetary policy through the interest rate channel, credit channel, and exchange rate channel to inflation in Indonesia using the Vector Error Correction Model (VECM). VECM estimates show that all variables in the short term have no effect on inflation. The results of the Impulse-Response Function (IRF) show that all variables in the model are able to stabilize the inflation rate within three to seven months, while stabilizing real sector growth takes four to eight months. The results of the Forecast Error Variance Decomposition (FEVD) show that Total Conventional Banking Credit (CRED) has the most influence on inflation, while Bank Indonesia Certificate (SBI) is the variable that has the most influence on the real sector. Sharia monetary instruments play a big role in controlling inflation, but the effect is not as big as conventional monetary instruments. So that the relevant authorities are expected to develop more sharia monetary instruments based on the real sector based on underlying assets in order to be able to strengthen their influence on inflation.

Projecting wheat demand in China and India for 2030 and 2050: Implications for food security.

The combined populations of China and India were 2.78 billion in 2020, representing 36% of the world population (7.75 billion). Wheat is the second most important staple grain in both China and India. In 2019, the aggregate wheat consumption in China was 96.4 million ton and in India it was 82.5 million ton, together it was more than 35% of the world's wheat that year. In China, in 2050, the projected population will be 1294-1515 million, and in India, it is projected to be 14.89-1793 million, under the low and high-fertility rate assumptions. A question arises as to, what will be aggregate demand for wheat in China and India in 2030 and 2050? Applying the Vector Error Correction model estimation process in the time series econometric estimation setting, this study projected the per capita and annual aggregate wheat consumptions of China and India during 2019-2050. In the process, this study relies on agricultural data sourced from the Food and Agriculture Organization of the United States (FAO) database (FAOSTAT), as well as the World Bank's World Development Indicators (WDI) data catalog. The presence of unit root in the data series are tested by applying the augmented Dickey-Fuller test; Philips-Perron unit root test; Kwiatkowski-Phillips-Schmidt-Shin test, and Zivot-Andrews Unit Root test allowing for a single break in intercept and/or trend. The test statistics suggest that a natural log transformation and with the first difference of the variables provides stationarity of the data series for both China and India. The Zivot-Andrews Unit Root test, however, suggested that there is a structural break in urban population share and GDP per capita. To tackle the issue, we have included a year dummy and two multiplicative dummies in our model. Furthermore, the Johansen cointegration test suggests that at least one variable in both data series were cointegrated. These tests enable us to apply Vector Error Correction (VEC) model estimation procedure. In estimation the model, the appropriate number of lags of the variables is confirmed by applying the "varsoc" command in Stata 17 software interface. The estimated yearly per capita wheat consumption in 2030 and 2050 from the VEC model, are multiplied by the projected population in 2030 and 2050 to calculate the projected aggregate wheat demand in China and India in 2030 and 2050. After projecting the yearly per capita wheat consumption (KG), we multiply with the projected population to get the expected consumption demand. This study found that the yearly per capita wheat consumption of China will increase from 65.8 kg in 2019 to 76 kg in 2030, and 95 kg in 2050. In India, the yearly per capita wheat consumption will increase to 74 kg in 2030 and 94 kg in 2050 from 60.4 kg in 2019. Considering the projected population growth rates under low-fertility assumptions, aggregate wheat consumption of China will increase by more than 13% in 2030 and by 28% in 2050. Under the high-fertility rate assumption, however the aggregate wheat consumption of China will increase by 18% in 2030 and nearly 50% in 2050. In the case of India, under both low and high-fertility rate assumptions, aggregate wheat demand in India will increase by 32-38% in 2030 and by 70-104% in 2050 compared to 2019 level of consumption. Our results underline the importance of wheat in both countries, which are the world's top wheat producers and consumers, and suggest the importance of research and development investments to maintain sufficient national wheat grain production levels to meet China and India's domestic demand. This is critical both to ensure the food security of this large segment of the world populace, which also includes 23% of the total population of the world who live on less than US $1.90/day, as well as to avoid potential grain market destabilization and price hikes that arise in the event of large import demands.

Effect of Management Efficiency on Financial Performance of Commercial Banks in Kenya

Performance of commercial banks has critical implications for economic growth of countries. The Kenyan banking sector remained resilient on the backdrop of turbulence, characterized by interest rate capping in 2015 and the prolonged electioneering period in 2017 which brought uncertainties in the banking sector. This study investigated the effect of management efficiency on financial performance of commercial banks in Kenya. Efficient market hypothesis and modern portfolio theory guided the study. The study adopted an explanatory research design. The study used 2009-2018 secondary consolidated panel data of 40 commercial banks from Central Bank of Kenya and International Monetary Fund. Time series econometric procedures of co-integration and Vector Error Correction model (VECM) were used so as to determine nature of the time series data and equilibrium relation between the variables. The VECM estimation results identified a significant short run and long run equilibrium relation between coefficient of management efficiency and financial performance of commercial banks in Kenya. The Coefficient of Management Efficiency was 0.2359, p=0.008 < 0.05. The coefficients of management efficiency were positive and significant at 5% level. This implied that for every unit increase in coefficient management efficiency would increase by 0.2359 units of financial performance of commercial banks in Kenya respectively in the long run. The findings indicated a significant co-integration relation between management efficiency and finance performance of commercial banks in Kenya. The VECM results also indicated that management efficiency and financial performance have a long run equilibrium during the study period. Managerial policies and strategies that are cost effective and productive efficient could raise the managerial efficiency and financial performance of banks. Based on the findings the study recommended that banks put a lot of focus on their own internal processes since management efficiency, had positive influence on their profitability policies.

The Effect of Monetary Instrument of Islamic Banking Financing Channel Towards The Economic Growth in Indonesia

Monetary policy is closely related to activities to achieve economic growth, which eventually gives welfare to the community. This study aims to analyze the description of the transmission flow of financing channels, the effect of monetary policy instruments, and their effectiveness to achieve economic growth. The variables used are Islamic Banking Finance (FIN), return of Sharia Bank Indonesia Certificate (SBIS), return of PUAS, and Industrial Production Index (IPI). This study used Vector Error Correction Model (VECM) to determine short- and long-term relationships using the time series data. First, the result of the study showed that the transmission flow could not be identified clearly, because the flow stopped in FIN, and it could not affect IPI, according to the Granger Causality test. Second, the result of VECM estimation showed that all variables only affected long term period and did not affect the short-term period. Third, monetary policy transmission of Islamic banking financing channel was not effective enough, which was proven with the result of IRF simulation, which showed that the effect of shock on financing channel variable (FIN) towards IPI was subsided and stable in the 10th period later. Meanwhile, the result of the FEVD simulation showed that the financing channel variable (FIN) only gave a contribution of as much as 0.14 percent towards IPI. The contribution and policy implications are also discussed in this study.

Islamic Certificate of Bank Indonesia (SBIS)'s Impact on Indonesian Economic Growth

This study aims to determine the effect of monetary policy indicators, particularly Islamic Certificates of Bank Indonesia (SBIS), on economic growth in Indonesia. The dependent variable in this study is economic growth seen from the value of GDP. The independent variables used in this study are the money supply, BI rate, inflation, exchange rate (exchange rate), and Islamic Certificates of Bank Indonesia (SBIS). The type of data used in this study is secondary data in monthly time series (time series) from January 2010 to December 2019 sourced from the Central Statistics Agency (BPS) and Bank Indonesia (BI). This study uses the Vector Error Correction Model (VECM) analysis method. The VECM estimation results show that the effect of the money supply, BI rate, and Islamic Certificates of Bank Indonesia (SBIS) on economic growth in Indonesia in the short term is positive, but in the long term, it has a negative effect. Inflation in the short and long term does not affect economic growth in Indonesia. The exchange rate in the short term does not affect economic growth in Indonesia, while in the long term, it has a positive effect.Keywords: Economic Growth, Money Supply, BI Rate, SBIS, VECM.

Causality Analysis of the Brent Oil Prices, the Gold Prices and the Exchange Rates (USD/IDR) on Indonesia Composite Index (Empi rical Study January 2016 – April 2021)

Global economic conditions are in turmoil due to the COVID-19 pandemic since 2019. Many policies are implemented to suppress the spread of the virus, which then has an impact on economic activity. It influences investors' attitudes and changes the choices in investing. This study aims to analyze the causal relationship between the Indonesia Composite Index (ICI) and gold prices, oil prices and the exchange rate (USD/IDR). This study used monthly data for the period January 2016 – April 2021 with an analysis of the Vector Error Correction Model (VECM), which is a restricted VAR model with the Eviews 10 tool. The long-term VECM estimation results show that Brent oil prices and gold prices have a negative effect while the exchange rate (USD/USD) IDR) the ICI. The Granger causality test shows that the ICI has a one-way causality relationship with the exchange rate (USD/IDR).

FACTORS THAT INFLUENCE MONEY / M2 MONEY IN INDONESIA (DATA PERIOD Q1.2001 - Q4.2015)

This study aims to analyze the demand for money (broad money / M2) with a model that uses the condition of non-stationary data so that it can estimate the need for money in the economy. The period of data studied is from Q1.2001-Q4.2015. The analysis technique used is the Vector Error Correction Model (VECM) by conducting data stationarity tests, cointegration tests, lag feasibility tests, VECM Estimates, Granger Causality Test, and Impulse Response Function analysis to determine the effect ofshock from other variables.
 The results of this study indicate that: 1) GDP has a positive influence both in the short and long term on the money supply (M2); 2) Exchange rates or exchange rates also have a positive influence on M2; 3) Interest rates negatively affect M2;4) Inflation has a positive effect on M2.
 
 Keywords: Money supply (M2), GDP, exchange rate / exchange rate, interest rates and inflation

Analysis of Macroeconomic Influence Return on Assets Banking Study on Conventional Commercial Banks in Indonesia for the Year 2018–2020

This study aims to analyze the effect of macroeconomic variables on the return on banking assets. The data processing method used by the researcher is using the Vector Error Correction Model (VECM) as a data analysis tool and this study confirms that the extent to which it examines the positive and significant influence between macroeconomic variables on the return on banking assets. The data obtained is secondary data based on financial statements within a period of 3 years using monthly time series data. The results of this study indicate that there is a positive and significant effect on the exchange rate and CPI variables while it is negative and significant on the inflation, interest rate and IPI variables resulting from the long-term VECM estimation. While the results show that there is a positive and significant effect on the interest rate and CPI variables and a significant negative on the inflation variable, positive and insignificant on the exchange rate variable, negative and insignificant on the IPI variable on the ROA of the short-term VECM estimation results. The results of the measurement of the composition or contribution of the influence of the independent variable on the dependent variable show the interest rate variable with a value of 4.11% in the 10th period obtained through the results of the decomposition variance (VD) test on the return on assets (ROA) of banking studies at Conventional Commercial Banks in Indonesia.