Macroeconomic and Economic Policy Uncertainty on Index Movement: An Empirical Study of the Islamic Capital Market in Indonesia

Abstract

This study aimed to investigate the long-term effects of macroeconomic factors and U.S. economic policy uncertainty on Jakarta Islamic Index (JII). In addition, it closely examined JII's responses to macroeconomic shocks and U.S. EPU fluctuations from January 2018 to September 2022. The analysis included macroeconomic elements such as Inflation, exchange rate, GDP, and EPU, using Vector Error Correction Model (VECM). The results showed a persistent influence of GDP on JII, and in the structural analysis, JII capitalization showed volatility in response to Inflation, positive responses to exchange rate movements (USD/IDR), and adverse reactions to U.S. GDP and EPU. The study also showed USD/IDR exchange rate as the primary contributor, followed by U.S. EPU, GDP, and Inflation, in explaining variations in the variable.