Money, finances and credit

The pass-through effect of interest rate and asymmetric adjustment in Indonesia

Economic Annals-XXI

Economic Annals-ХХI: Volume 166, Issue 7-8, Pages: 61-66

Citation information:
Puah, Ch.-H., Liew, V. Kh.-S., & Tang, M. M.-J. (2017). The pass-through effect of interest rate and asymmetric adjustment in Indonesia. Economic Annals-XXI, 166(7-8), 61-66. doi: https://doi.org/10.21003/ea.V166-12

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Chin-Hong Puah
PhD (Economics),
Associate Professor,
Faculty of Economics and Business,
University of Malaysia Sarawak
94300 Kota Samarahan, Sarawak, Malaysia
chpuah@unimas.my
ORCID ID: http://orcid.org/0000-0003-0187-7413

Venus Khim-Sen Liew
PhD (Economics),
Associate Professor,
Faculty of Economics and Business,
University of Malaysia Sarawak
94300 Kota Samarahan, Sarawak, Malaysia
ksliew@unimas.my
ORCID ID: http://orcid.org/0000-0002-2305-1404

Maggie May-Jean Tang
PhD Candidate (Economics),
Faculty of Economics and Business,
University of Malaysia Sarawak
94300 Kota Samarahan, Sarawak, Malaysia
maggietang86@hotmail.com
ORCID ID: http://orcid.org/0000-0002-3279-2538

The pass-through effect of interest rate and asymmetric adjustment in Indonesia

Abstract. Using the data set for the sample period of January 1999 to December 2016, this paper aims to analyse the interest rate pass-through effect and the asymmetric behaviour of retail rates in Indonesia’s economy. By employing asymmetric threshold autoregressive (TAR) and momentum threshold autoregressive (MTAR) models, the deposit and lending rates were found to have an incomplete pass-through effect in response to the changes in the money market rates. Based on the empirical results, an asymmetric behaviour was discovered in the adjustment of the deposit and lending rates. The asymmetric error correction models further reflected that the deposit rate has a faster speed in the downward direction while the lending rate adjusts more rapidly in the upward direction.

Keywords: Interest Rate Pass-through; Credit; Deposit; Asymmetric Threshold Autoregressive Model (TAR); Momentum Threshold Autoregressive Model (MTAR); Indonesia

JEL Classification: E43; E52; C24

Acknowledgements: Financial support from University Malaysia Sarawak (UNIMAS) via Dana Principal Investigator research grant 03(DPI21)985/2013(04) is gratefully acknowledged.

DOI: https://doi.org/10.21003/ea.V166-12

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Received 11.05.2017

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