Indonesia's Bank Response of Interest Rates to the Prices of World Crude Oil and Foreign Rates of Interest

Abstract

This paper focused to examine the interest-rates response specified by the Bank of Indonesia's () to the world crude oil prices and foreign rate of interest. It examined monthly data which ranged from the period of August 2004 to November 2019. The difference equation model was employed for this estimation. The test findings indicated that there was a direct response of the rate of interest specified by  to the world crude oil price and foreign rate of interest. The rate of interest retained by  rose (fell) by 0.124 per cent in response to each one per cent rise (decline) in the world crude oil price. Moreover, the rate of interest rose (fall) by 0.073 per cent in response to each one per cent rise (decline) in the foreign rate of interest.Keywords: Prices of World Crude Oil, Domestic-Interest Rate, Foreign-Interest Rate, Difference Equation ModelJEL Classifications: E3, E4DOI: https://doi.org/10.32479/ijeep.10692