The Role of Monetary Policy to Stock Market in Indonesia: The Case of the Mining Sector

Abstract

This study aims to analyze the long-term and short-term effects, causality, and effectiveness of monetary policy on mining subsector stocks in Indonesia. This study uses the Vector Error Correction Model (VECM) method and uses secondary data with an analysis period of 2000 to 2020 with monthly data frequency. The total sample used was 252 months. The results of this study show that in the short term, economic growth and exchange rates hurt the mining subsector stock price index. While the world crude oil price has a positive and significant effect on the mining sub-sector stock price index. In contrast to interest rates that do not affect the mining sub-sector stock price index. Different analyses result in the long term, namely only interest rates and economic growth that affect the mining sub-sector stock price index. Interest rates in the long term have a positive and significant effect, while economic growth has a negative and significant effect on the mining sub-sector stock price index. This study's results also show a one-way causality or reciprocal relationship between the exchange rate and the mining sub-sector stock price index, the mining sub-sector stock price index and oil prices, and interest rates on the mining sub-sector stock price index. At the same time, economic growth has no causality relationship to the mining subsector stock price index. It is expected that business actors will be able to adopt environmentally friendly monetary policies as stipulated by the central bank in Bank Indonesia Regulation Number 24/5/PBI 2022 for the sake of economic sustainability in Indonesia.