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Financial Market Responses to Bank Indonesia’s Policy Announcements

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  • Sahminan, Sahminan

Abstract

This paper examines the effect of the BI rate announcements on financial markets in Indonesia. The estimation results show that interbank interest rates with overnight, 1-week, and 1-month maturity are significantly lower a day before the announcement of lower BI-rate. On the other hand, the levels of exchange rate return, stock return, or government bond’s yield are not significantly affected by BI-rate announcements. The announcements of lower or constant BI-rate significantly bring down volatility of interbank interest rate with overnight, 1-week, and 1-month maturity, as well as the volatility of government bonds’ yield, exchange rate return and stock returns. The largest effect of BI rate announcement is experienced by overnight interbank interest rate, both in terms of level as well as in terms of volatility.

Suggested Citation

  • Sahminan, Sahminan, 2007. "Financial Market Responses to Bank Indonesia’s Policy Announcements," MPRA Paper 93401, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:93401
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    File URL: https://mpra.ub.uni-muenchen.de/93401/1/MPRA_paper_93401.pdf
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    References listed on IDEAS

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    1. Charles Engel & Jeffrey A. Frankel, 1982. "Why money announcements move interest rates: an answer from the foreign exchange market," Proceedings, Federal Reserve Bank of San Francisco, issue 6, pages 1-36.
    2. Carlo Rosa & Giovanni Verga, 2006. "The Impact of Central Bank Announcements on Asset Prices in Real Time: Testing the Efficiency of the Euribor Futures Market," CEP Discussion Papers dp0764, Centre for Economic Performance, LSE.
    3. Refet S Gürkaynak & Brian Sack & Eric Swanson, 2005. "Do Actions Speak Louder Than Words? The Response of Asset Prices to Monetary Policy Actions and Statements," International Journal of Central Banking, International Journal of Central Banking, vol. 1(1), May.
    4. Mr. Marcel Peter & Mr. Scott Roger & Mr. Geoffrey M Heenan, 2006. "Implementing Inflation Targeting: Institutional Arrangements, Target Design, and Communications," IMF Working Papers 2006/278, International Monetary Fund.
    5. Michael Ehrmann & Marcel Fratzscher, 2007. "Communication by Central Bank Committee Members: Different Strategies, Same Effectiveness?," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 39(2-3), pages 509-541, March.
    6. Bomfim, Antulio N., 2003. "Pre-announcement effects, news effects, and volatility: Monetary policy and the stock market," Journal of Banking & Finance, Elsevier, vol. 27(1), pages 133-151, January.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Monetary Policy; Announcement; Bank Indonesia;
    All these keywords.

    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies

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