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Updated: Jul 20, 2025

An R-Based Landscape Validation of a Competing Risk Model
Published on: September 16, 2022
Investigating the relationship between monetary policy, macro-prudential policy and credit risk in Indonesia banking
Cep Jandi Anwar1, Indra Suhendra1, Eka Purwanda2
1Department of Economics, Faculty of Economics and Business, University of Sultan Ageng Tirtayasa, Banten, 42118, Indonesia.
Abstract:
Using a novel panel data set we study the influence of monetary and macro-prudential policies on non-performing loans as a measure of credit risk in Indonesian banking industry from Q1 2010 to Q4 2022. The panel homogeneity assumption was verified through the utilization of the Chow and Roy-Zellner tests. The findings showed that the model was not homogenous, necessitating the use of the Pooled Mean Group (PMG) estimator. The results indicated that monetary and macro-prudential policies significantly impacted credit risk. Furthermore, tight monetary and macro-prudential policies increased and reduced credit risk in the long run, respectively. The findings also showed that a loosening monetary policy reduced credit risk in the short run. Therefore, higher authorities must establish effective monetary and macro-prudential policies to reduce the non-performing loan ratio and maintain credit risk in Indonesia's banking industry.
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