The first is that the stability of the financial system is not just about the individual health of the financial system. Source of the data is World Bank (WB), International Monetary Fund (IMF) and Central Bank of the Republic of Azerbaijan (CBAR).
LITERATURE REVIEW
To deepen the research, we have to do with expanding the list of individual indicators and then applying fuzzy approach to all indicators to achieve different weights for the individual indicators. Next, we present the methodology for the construction of the stability indices in the third section.
METHODOLOGY
Non-government credit-to-total credit ratio (NGC) - Reduction in the value of this indicator has a negative impact. The literature mentions several methods to determine the weight of the variables in the FSI.
RESULTS AND ANALYSIS
Fuzzy approach to measuring AFSI
The weights of sub-indices and aggregate index of financial stability for the period 2005-2015 are given in Table 5. There are few studies on the effect of financial inclusion on financial stability with different results. Moreover, some studies showing potential negative effects of financial inclusion on financial stability have been conducted by Dupas et al.
In addition, people with lower income levels should have a better impact of financial inclusion on financial stability than people with higher income (CGAP 2013).
METHODOLOGY Types and Sources of Data
Calculation of Financial Stability Index in this study uses a method developed by Albulescu and Goyeau (2010). WhereDt = the value of financial development index, which is the average value of all the input indicators in t period. V t = the value of financial vulnerability index, which is the average value of which all indicators are included in period t.
In the analysis of the impact of financial inclusion on financial stability in Asia, the comparison used from Pontines Morgan (2014) with tobit model.
RESULT AND DISCUSSION
The group of lower middle income countries has the lowest average value of the financial inclusion index at 0.127. All dimensions of financial inclusion in the group of middle-income countries are the lowest compared to other groups. Financial openness has a significant negative effect on the stability of the financial system in high-income countries at the level of 1%.
The financial crisis has a significant impact on the stability of the financial system with a significance level of 1% across all income level groups.
FINDING AND CONCLUSION
This paper is considered a very preliminary work in the field of early warning system for Islamic banking resilience. Several macroeconomic and financial variables should be included as leading indicators to capture the resilience of Islamic banking. Meanwhile, the resilience of Islamic banking must be supported by resilience in the real sector.
Negative shocks are exogenous shocks which then damage the sustainability of Islamic banking due to incomplete markets in the financial system.
RESEARCH METHODOLOGY 1. Research Approach
Stages for Building EWS through Signal Approach 1. Defining The Resilience of Islamic Banking
Financially, a bank is exposed to risk as the value of its assets and liabilities changes dynamically in the financial market. So the lowest of its share would be good to minimize panic behavior in the markets. In addition, credit growth that is considered excessive can lead to systemic risks, given the interconnectedness of the financial system.
An overvaluation of the real exchange rate may therefore lead to a greater possibility of a crisis.
RESEARCH FINDINGS
Therefore, it can be seen that loan growth represents a boom and bust period in the financial cycle. Also, during the global financial crisis, the inflation rate was quite high and exceeded the red line. This section explains the performance of each leading variable using a signal extraction approach.
It implies that this approach is suitable to detect a signal followed by a crisis in the next 24 months.
CONCLUSION
Kewajiban Penyediaan Minimum Capital Bank Umum, Pub. http://www.bi.go.id/id/peraturan/perbankan/Documents/. Towards a New Early Warning System of Financial Crises‖, Working Paper of the European Central Bank, no. 1996), ―Bank Insolvency: Bad luck, Bad Policy or Bad Banking?‖, Paper presented at the 1996 Annual Bank Conference on Development Economics, World Bank Economic Review, January 1997. User's Guide to an Early Warning System on macroeconomic vulnerability in Latin American countries (No banking system failures in developing and transition countries: Diagnosis and Forecasts‖, Working Paper 39, Bank for International Settlements. An Early Warning System for Six Asian Countries‖, CCSO Working Paper 13, Department of Economics, University of Groningen, The Netherlands.
Matthieu Bussiere & Marcel Fratzscher (2006), Towards a new early warning system of financial crises, Journal of International Money and Finance 25, pp.
INTRODUCTION
Developed Countries Unconventional Monetary Policy Generally, central banks implement monetary policy through
The unconventional monetary policy measures of the developed countries had a clear impact on the emerging market countries. Some studies provide evidence of the international spillovers from developed countries' unconventional monetary policies to emerging markets. Using the event study method, she finds that developed countries' unconventional monetary policies affected exchange rates, stock prices, and long-term returns.
They found that the FED's unconventional monetary policy affected portfolio reallocation in global financial markets.
METHODOLOGY Data
Examining The Announcement Event
An event study analysis was used to investigate the unconventional monetary policy announcements of the developed countries, because this method is able to capture the impact of an event in a short time window, as the spillover effects of developed countries' unconventional monetary policy is expected to be transmitted quickly. the date of the event. This model will provide a matrix of the change in exchange rate of emerging market countries when an unconventional monetary policy announcement occurred. In this study, the event that contributes to exchange rate depreciation will be classified as a negative event.
To standardize the change in the exchange rate (local currency/US$) of emerging market countries ( ), this study used two measures of change, namely the logarithm change after and before the event described in (i) and the mean deviation from the log change in the year in which the event i described in (ii) occurs.
Significance of Macroeconomic Country Characteristics Secondly, panel regressions will be estimated by pooling the
RESULTS AND DISCUSSIONS
Unconventional Monetary Policy Announcements Effect
Furthermore, Figure 3 (Appendix) shows that 13 out of 15 countries experienced exchange rate depreciation on this date. The results of this event study method used a group time series regression to analyze the relationship in exchange rate changes in emerging markets and the pattern of unconventional monetary policy announcements. The interaction term indicates that inflation will reinforce exchange rate depreciation only if it occurs at the same time as the announcements.
The coefficient on the estimation results shows that capital flow measures are much more effective in maintaining exchange rate stability.
CONCLUSION
Optimal Interest Rate
The monetary policy efficiency is calculated by taking into account the variation of inflation and the optimal variation of output. The efficiency frontier of monetary policy is reduced by minimizing the loss function for prudent monetary policy. The efficiency frontier of monetary policy for discretionary policy will tan the trade-off line of output and inflation variation.
The effectiveness of monetary policy can be measured from the distance of the actual point of the output and inflation variation to the monetary policy effectiveness frontier.
MEASUREMENT FOR EFFICIENCY OF MONETARY POLICY
Furthermore, the average inefficiency between two periods will be calculated by assuming that the central bank chooses the interest rate that minimizes the loss function that minimizes the squared deviation from inflation and output of the average target. Where π* and y* are the inflation measure and the output measure for each t taken from the average value, and is the inflation level for each t taken from the average value. Plotting var(π) in vertical axis and and var(y) in horizontal axis will from an indifference curve or efficiency curve frontier, at which stage the curve is called the original frontier (This curve has social MRS = /(1 -)).
Pi and Si are calculated once each for each period of i by taking the mean of πi and the mean of yi in each period.
THE EFFICIENCY OF MONETARY POLICY IN INDONESIA
Measurement of the Efficiency of Monetary Policy In this part, the efficiency of monetary policy will be calculated in
The decrease in the value of P2 compared to P1 indicates that the macroeconomic performance increases due to the ITF implementation, i.e. the inflation determination as a target for monetary policy. Contrary to the principle of full discretion, the ITF requires that discretionary policy in the conduct of monetary policy be limited. The ITF approach in monetary policy implementation in several developed countries generally recorded a success story.
The efficiency of monetary policy can be measured by calculating the distance of the performance point from the original frontier curve.
LITERATURES
The question is whether the application of ITF, which causes lower interest rates, improves comparative advantage and trade balance for capital-intensive products in Indonesia. However, unskilled labor-intensive products are used as a control group that is compared with classification 5 and 6. In this study, one group of products affected by ITF is capital-intensive products and control group that is not affected is unskilled labor-intensive products.
The coefficient excludes the other effect affecting RSCA and TBI assuming an effective treatment group, technology-intensive or human capital-intensive products, and control group, unskilled-labour intensive products.
RESULT AND DISCUSSION 1. Product Mapping
The Mundell-Fleming Model
- The BP Curve in the IS-LM Framework
- Exchange Rate Regime: Fixed Exchange Rates versus Flexible Exchange Rates
The BP curve illustrates different combinations of income and interest rate that ensure the balance of payments equilibrium (Froyen, 2009). Once there is a change in income (Y*), interest rate (r*), the BP curve in the ISLM framework will shift. In the case of Thailand, the monetary policy is under fixed exchange rates with perfect capital mobility.
The new equilibrium point is below the BP plan, indicating a deficit in the balance of payments.
Literature Review on Trilemma
During the recovery process in 1998, Korea and Thailand had a more stable exchange rate regime, low inflation, low interest rates and a high level of foreign direct investment. The financial crisis triggered during that period has resulted in a greater degree of financial openness and exchange rate stability. Due to having both exchange rate stability and financial openness, the authority will not go for a higher level of monetary independence.
It can be done either by giving up or reducing the level of monetary independence or financial openness.
METHODOLOGY 1 Model and Data Source
Method of Estimation
When dealing with balance panel data, Pyndick and Rubenfield (1998) classified the method of estimating data panel analysis into three categories, namely Pooled Least Square, Fixed Effect, and Random Effect. Chow test is used to choose the method between pooled least squares and fixed effect that can give the best estimation result to the model. Hausman test is used to choose the best method between fixed effect and random effect.
The Breusch-Pagan LM test is applied to choose between random effect and pooled least square which gives the best estimation result.
RESULT AND DISCUSSION
Evidence from the Malaysian experience has shown that some level of capital controls could have a positive impact on economic growth.
