Inflation Targeting in Indonesia: The Role of Islamic and Conventional Bank in the Dual Banking System
Ugi Suharto and Muhamad Nagib Alatas

Universitas Islam Internasional Indonesia

Abstract

Indonesia^s dual banking system exhibits in a particular behavior of monetary policy like inflation targeting since Islamic and conventional banks inherit significantly different rules and standards. Therefore, the main objective of the paper is to investigate which one is contributing more to helping the government target. We hypothesize that Islamic banks play a more significant role. To achieve that, this paper will conduct an empirical and comparative study between Islamic banks and conventional banks in Indonesia. The expected policy implication of the paper is to give a suggestion to the government regarding the impact of the Islamic and conventional banks^ behavior on the inflation target policy. This, in turn, will assist the monetary policymaker in achieving its target.

Keywords: Islamic Bank, Dual banking system, Inflation Targeting

Topic: Islamic finance and banking