Monetary Policy Transmission Mechanism in Indonesia, Malaysia and Singapore

This study expanded the researches of monetary policy transmission mechanism by looking in the aspect of money view which consists of the interest rate channel, exchange rate channel and stock price channel. The study covered the context of Indonesian, Malaysian and Singaporean economies which share similar economic structures but adopted different policy targeting regimes. As interest rates played an important role in money view, it is crucial to have a prior understanding on the interest rate pass-through effect before examining the strength of each transmission channel. TAR and MTAR models were employed to analyse the degree of interest rate pass-through effects and the asymmetric behaviour in the interest rate adjustments. The empirical findings indicated that interest rate pass-through effects were incomplete and asymmetrical behaviour were found in the adjustments of interest rates. On the other hand, SVAR models were implemented in the study to examine the monetary policy transmission mechanism in the three analysed countries. In order to revisit the role of monetary aggregate in transmission mechanism, an alternative monetary aggregate, the Divisia money was constructed in the study to compare its relative performances as policy indicator in the economy with the conventional simple sum money. The empirical findings showed that monetary aggregate were performed well in affecting the economy with Divisia money outperformed the simple sum money in the model selections. Monetary aggregate is said to be the best variable in transmitting the impact of monetary policy into markets. As for the strength of each asset price channel, exchange rate channel and stock price channel performed well in Indonesia while interest rate channel and stock price channel were dominant in Malaysia and the stock price channel was the best in Singapore. Lastly, by looking at the effective time frame for each monetary policy transmission channel, stock price channel is found to be strong in transmitting the impacts of monetary policy in the short run while Divisia monetary aggregate is most effective in channelling the impact of monetary policy shocks for longer time period in Indonesia, Malaysia and Singapore