IIMEFC 2019

ANALYSIS OF UMER CHAPRA

THOUGHT ON ISLAMIC MONETARY
INSTRUMENTS IN INDONESIA:
A VAR/VECM APPROACH
Ahlis Fatoni1, Faroq Ansori2, Mohamad Mahbubi Ali3

1
International Islamic University Malaysia, ahlisfatoni@gmail.com
2
International Islamic University Malaysia, official.faroq@gmail.com
3
International Institute of Advanced Islamic Studies,
mahbub@iais.org.my
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I. INTRODUCTION
II. LITERATURE REVIEW
III. METHODOLOGY
IV. RESULTS AND ANALYSIS
V. CONCLUSION AND
RECOMMENDATION
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I. INTRODUCTION
Monetary Policy ?
Interest Rate %
= Riba

(1) growth Target in M and M0,

(2) the shares of a public rally against
deposit (money giral),
(3) the official mandatory Reserves,
(4) credit restrictions,
M. Umer Chapra (5) the allocation of credit to the value-
oriented,
(6) the dwarf the others.
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II. LITERATURE REVIEW

The focus of Islamic monetary policy is
more focused on maintaining the rotation
of economic resources, which is the core of
the Islamic economy in all forms of policies
and provisions permitted by sharia.
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Previous Studies
     
1.   Tittle The Flow of Transmission and Effectiveness of Double Monetary
Policy in Indonesia
  Researcher Ascarya (2012)
(year)
  Methodology Granger and VAR
  Result Monetary policy to "reduce inflation" with the sharia pattern is more
effective than with the conventional pattern.
2 Tittle Monetary Policy Transmission Mechanism under Dual Financial
System in Indonesia: Interest-Profit Channel
  Researcher Ascarya (2013)
(year)
  Methodology ECM, VECM, and ARDL
  Result SBIS Islamic policy interest rates are still largely unsatisfied results,
because it is based on juualah and benchmarked to conventional
SBI rates policies, so that SBIS must be increased by using a mode
(PLS) that reflects back in the real sector, to provide macroeconomic
impact and stability price and sustainable economic growth. In
addition, low and stable inflation and increased economic growth
can be achieved under a dual financial system by increasing the
share of the Islamic financial system, particularly Islamic banking.
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3 Tittle Central Bank Islamic Monetary Instrument: a Theoritical

Approach
  Researcher Rifki Ismal (2011)
(year)
  Methodology Qualitatif
  Result This paper concludes that based on values in Islam, Islamic
monetary instruments can contribute to stabilizing the economy.
4 Tittle The Welfare effects of inflation and financial innovation in a model
of economic growth, an Islamic perspective
  Researcher Abdeel Hamieed M. Bashir(2002)
(year)
  Methodology Qualitatif
  Result The model demonstrates that the fixed interest payment ban
prohibits monetary policy in the Islamic economy to enhance and
innovate alternative financial instruments that do not have a fixed
nominal value and do not hold a fixed rate of return.
5 Tittle The Islamic gracious monetary instruments: a theoretical approach
  Researcher Rifki Ismal(2013)
(year)
  Methodology Qualitatif
  Result Central bank is able to have alternative in Islamic monetary
instruments such as qard hasan, waqf, and hibah which it has
potential to improve people’s welfare especially for the needy.
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III. METHODOLOGY
Data Types and Sources
Data Variable Period Unit Source
(Variable)
M0 LNM0 Monthly Index Bank
Indonesia
Deposit LNDM Monthly Index Bank
Money Indonesia
Statutory SRR Monthly Index Bank
Reserve Indonesia
Requireme
nts
Economic LNEG Monthly Percent Bank
Growth Indonesia
(IPI)
by utilizingLNEXC
ExchangeVAR/VECM
Monthly for Index
2004-2017
Bank
Rate Indonesia
period,
Stability
(IDR)
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IV. RESULTS AND

ANALYSIS
Data Stationary Test, Cointegration Test , Correlation Test, VAR Model Stability,
Optimum Lag Test, Cointegration Analysis Test

Figure 1. LNEG Variable Response to LNDM, LNM0 and SRR Figure 2. LNEXC Variable Response to LNM0, LNDM and SRR
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Figure 3. FEVD of LNEG

Figure 4. FEVD of LNEXC

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V. CONCLUSION AND
•
RECOMMENDATION
One contemporary Muslim economist thinker, Umer Chapra, has an idea
about the Islamic monetary instrument itself, with the aim of economic
growth, exchange rate stability. The instrument variables used are the
growth of M and M0, Deposit Money, Statutory Reserve Requirements.
• From the results of the IRF of the LNEG variable studied, it was found
that the shock that occurred in the LNDM variable was responded
negatively by the LNEG variable. This can be interpreted if there is an
increase in the amount of demand deposits, then economic growth will
have a negative effect, even though the response given is not too large.
Then the shocks that occurred in the LNM0 variable responded positively
by LNEG even though the response given was not too large. This means
that when there is an increase in M0 growth, economic growth will
increase. While shocks that occur in the variable reserve requirement
responded positively by LNIPI
• From the IRF results of the studied LNEXC variable, it was found that the
shock that happened in the LNM0 variable was responded negatively by
the LNEXC variable. This can be interpreted if there is an increase in the
number of demand deposits, then economic growth will experience a
negative trend, even though the response given is not too large. Then
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• The contribution or share of the influence provided by each

monetary instrument variable on economic growth, namely the
LNM0 variable, offers the most significant contribution to
economic growth in Indonesia by 7.25%. The next variable that
had the most significant contribution after LNM0 was SRR with a
contribution of 2.9%. and the last is the LNDM variable which
contributed 2.13%.
• While the contribution or share of the influence provided by
each monetary instrument variable on exchange rate stability in
Indonesia is the SRR variable of 33.5%. The next variable that
has the most significant contribution after the reserve
requirement is LNDM with a contribution of 0.8%. and the last is
LNM0 variable which contributes 0.6%.
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Wallahu a’lam