Analyzing a macroprudential instrument during the COVID-19 pandemic using border collision bifurcation

Monch. Fandi Ansori; Novriana Sumarti; Kuntjoro Adji Sidarto; Iman Gunadi

doi:10.24310/recta.22.2.2021.19881

Authors

Monch. Fandi Ansori Institut Teknologi Bandung Indonesia
Novriana Sumarti Institut Teknologi Bandung Indonesia
Kuntjoro Adji Sidarto Institut Teknologi Bandung Indonesia
Iman Gunadi Bank Indonesia Institute Indonesia

DOI:

https://doi.org/10.24310/recta.22.2.2021.19881

Keywords:

Macroprudential policy, Loan dynamics, Border collision bifurcation, COVID-19

Abstract

Bank Indonesia, the central bank of Indonesia, has made adjustment settings in a macroprudential policy instrument called macroprudential intermediation ratio (MIR) to boost loan growth in the context of national economic recovery due to the COVID-19 pandemic. In this paper, a dynamic model of bank loan with procyclicality behavior is developed, and it is equipped with the predecessor of the MIR instrument called loan-to-deposit ratio based reserve requirement (LDR-RR). We examine the effects of LDR-RR parameters on the dynamics of loan using the border collision bifurcation analysis to determine the threshold values of the LDR-RR parameters so that the stability of loan equilibrium can be maintained. This model is applied to monthly data of Indonesian commercial banks before and during the COVID-19 pandemic to assess the stability region of the instrument parameters.

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