Paper Title
Bank Lending Channel In Indonesia�s Monetary Policy Transmission Mechanism: A Vecm Approach

Abstract
Various monetary policy transmission channels through which monetary policy actions impact real variables, such as interest rate channel, exchange rate channel, monetarist channel, and credit channel (Mishkin, 1995; Kutter and Mosser, 2002; Ireland, 2005). This paper tests the existence of the bank lending (credit) channel to explain the monetary policy transmission in Indonesia from 1986 through 2013. This paper used time-series Vector Error Correction Model (VECM) approach of stationarity test, cointegration test, and stability test. Impulse Response Function (IRF) has also been generated to explain the response to shock amongst the variables. Taking into account a long term relationship, Gross domestic product (real GDP), interest rates on bank loans (RC), reserve requirement (RR), and the consumer price index (CPI) negatively affect the Bank Loan (BL) in Indonesia. In the short term, real GDP, RR, and CPI positive influence on BL, while BL negatively affected by RC based on the results of the VECM analysis. Then, other variables also affect each other in the short term. The implication of this study is the banks need to reduce lending rates to boost investment, so that people can borrow easily to bank with low interest rates. Keywords- Bank Lending Channel, Exclusion AndExogeneity Restriction, Monetary Policy Transmission, VECM Model