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The effect of monetary, macroprudential policy, and their interaction on bank risk-taking in Indonesia

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  • Wonida, Hero
  • Setiastuti, Sekar Utami

Abstract

We employ quarterly bank-level data from 79 conventional commercial banks in Indonesia from 2009Q1 to 2021Q3 to investigate the effect of monetary policy, macroprudential policy, and the interaction of both policies on bank risk-taking in Indonesia. Several important results emerge. First, we find evidence of the risk-taking channel of monetary policy in Indonesia. Furthermore, banks with larger sizes and higher capital levels have a lower risk-taking tendency, represented by the Z-score. Second, macroprudential tightening lowers bank risk-taking. We also find that the interaction between macroprudential and monetary policy tightening reduces risk-taking. To ensure that the results are robust, we estimate our model using different measures of Z-score.

Suggested Citation

  • Wonida, Hero & Setiastuti, Sekar Utami, 2025. "The effect of monetary, macroprudential policy, and their interaction on bank risk-taking in Indonesia," Journal of Asian Economics, Elsevier, vol. 96(C).
    • Handle: RePEc:eee:asieco:v:96:y:2025:i:c:s1049007824001581
    DOI: 10.1016/j.asieco.2024.101863
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    Keywords

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    JEL classification:

    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • E61 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Policy Objectives; Policy Designs and Consistency; Policy Coordination
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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