The Influence of Conventional and Islamic Monetary Instruments on Gross Domestic Product: An Empirical Investigation on Indonesia

Abstract

This study aims to determine that Islamic monetary instruments and conventional monetary instruments both have an effect on the Gross Domestic Product in Indonesia. Indonesia nowadays uses a dual banking system so that in regulating its monetary policy, Indonesia uses a dual system monetary (Islamic monetary policy and conventional one) as well. This research uses the quantitative approach with Vector Auto Regression (VAR) method. This study seeks to fill the gap between theory and empirical evidence of the linkage between monetary instruments and gross domestic products. Such linkages, especially on Islamic monetary instruments that encourage the growth of the real economy should have more influence on the development of the real economy than conventional economic instrumentsThis research is held from January 2012 until December 2016 in Indonesia. There are 5 variables in this research, they are “Sertifikat Bank Indonesia” (SBI) and Reverse Repo “Surat Utang Negara” (SUN) to represent conventional monetary instrument, and the representative of Islamic monetary instrument is “Surat Bank Indonesia Syariah” (SBIS) and Reverse Repo “Surat Berharga Syariah Negara” (SBSN) and the last variable is Gross Domestic Product (GDP). The results of the study suggest that SBI has a significant positive effect on GDP in Indonesia. While Reverse Repo SUN, SBIS, and Reverse Repo SBSN have no significant effect on GDP. The results of this study can be used by the central bank to determine the portion of monetary policy in both Islamic and conventional banks to achieve the optimal goal of monetary policy.