<![CDATA[Before deregulation 1983 the monetary sector was dominated by the government bank Controlling money supply is directly influenced by Bank Indonesia, so as the interest rate and commercial bank ceiling credit. About 85% of banking assets was dominated by the state bank.Banking deregulation 1983 resulted in a more flexible banking sector. Ceiling credit was abolished and interest rates become market determined. As a result funds mobilization increased, more variety of banking product and competition is getting keen.The banking development has led a dramatic change in the demand for money. Using a fairly standard money demand model, this study attempt to analize:a. Whether there is a liquidity trap (as indicated by high interest elasticity of money demand)b. Whether there is also an economies of scale of holding moneyc. Stability of the demand for moneyUsing data for the period 1975 - 1996 and then disagregated into before andafter deregulation, the empirical results arc:a. For the periode 1975 - 1996 interest rate was significance factor affectingdemand for money and the elasticity is greater than one especially afterderegulation. This indicate that there is a liquidity trap, so that fiscal policy ismore effective.b. There is also an economies of scale as indicated by less elastic demand formoney with respect to income. The reason is that a rapid development in thepayment system, such as the use of credit card.c. Finally, using Chow-test shows thai the demand for money is unstable. Theimplication is that real sector policy is more appropriate than monetary policy.]]>
Copyrights © 1998
