Analysis of the Monetary Transmission Mechanism Channels in Indonesia and Effect in Regional Economics North Sumatera (A Projection with Stochastis Simulation-VAR Model)

This paper analyses the monetary transmission mechanism in Indonesia. Transmission channels can be classified into five sections, namely interest rate channel, assets price channel, exchange rate channel, credit channel and expectation channel. It tries to answer to the question: how is the behavior and effectiveness of the exchange rate and interest rate channel of the monetary policy transmission mechanism in influencing on the performance of the regional economics north Sumatera. Time series analysis such as unit root test, VAR, impulse response function and variance decomposition, are used to estimate the influence of exchange rate and interest rate on the real economic activity. The results of econometric analysis with VAR model suggest that monetary policy in Indonesia had a significant influence on the real economic activity through the interest rate and exchange rate channel. The results represent that interest rate and exchange rate channel are effective in influencing on the performance of the Regional Economic North Sumatera. Moreover findings indicate that interest rate and exchange rate have any influence on the real economy activity