DYNAMIC MODEL OF THE IMPACT OF MACRO INDICATORS AND ISLAMIC MONETARY POLICY INSTRUMENTS ON THE DUAL BANKING SYSTEM

Indonesia is the largest Muslim country with a unique monetary system that in its development tries to juxtapose two monetary systems that have different philosophies and still need to be deepened on the extent of their impact and effectiveness on the economy. The study explores the impact of macro indicators and monetary policy instruments on economic output in Indonesia. Using the time series analysis method with the Vector Error Correction Model (VECM) approach, the model shows the results that the Macro Capital Market or Stock Market indicators have a positive impact on the economy both in the short and long term. At the same time, inflation responds positively to short-term behavior but becomes economic constraints in long-term action. Meanwhile, in the Monetary policy instruments’ scope, the M1 variable consistently has positive implications both in the short and long term. In contrast, the M2 and SBIS variables give negative responses in the short time but become a driving force for the economy in the long term. Meanwhile, there is no positive correlation between Sharia, Monetary Operations with Economic Output. The research suggests focusing on innovating sharia monetary policy instruments by continuing to carry out monetary policy reforms in order to stimulate better economic conditions.


INTRODUCTION
The study of Macroeconomics is one of the main studies in the scope of Economics (Blaug, 1997). Economic production output is also a central indicator in macroeconomic studies because macroeconomic studies are always related to three main indicators, namely production output, unemployment, and inflation (Blanchard, 2017). must always be done.
In the Masterplan for the Indonesian Islamic Economy 2019-2024, it is stated that the main focus of the implementation of the Islamic economy is real economic growth, especially those that contribute greatly to economic growth in aggregate. In a global scope (BAPPENAS, 2019).

Figure 1 World Economic Growth
However, in 2020, in this pandemic condition, United Nation stated that there is a potential for economic growth to shrink by -3.2% due to the effects of the global Covid-19 pandemic, so a study is needed that is able to explain alternative steps that can be taken and used in maintaining growth stability in the global economy. various conditions. Meanwhile, Indonesia as a country with the largest Muslim population in the world domestically based on data from the Central Statistics Agency has also experienced a decline, since the first quarter of 2020 with a figure of 2.97% and dropped drastically in the second quarter to -5.32% although in the second quarter there were recovery but still at -3.49%. Thus, attention to the assessment of factors capable of maintaining growth stability becomes urgent in these conditions. In the financial system, based on Law no. 23 of 1999 concerning Bank Indonesia, it is known that Indonesia uses a dual banking system in its monetary practices and policies, Indonesian Interdisciplinary Journal of Sharia Economics (IIJSE) Vol. 5. No. 2 July 2022e-ISSN: 2621 Dinamic Model of ….. 632 thus placing Islamic Economics and Conventional Economics as two financial systems side by side and over time, although philosophically these two systems have different philosophies, they still support development goals of the economy in Indonesia (Ascarya, 2014).
From the conventional banking perspective, the development point for deposit and credit interest rates is the SBI (Bank Indonesia Certificate) interest rate. The SBI interest rate will be transmitted to the interbank money market so that it will affect the interbank deposit rate and bank credit, then credit extended to the public will affect the economy in the real sector. Thus, the transmission from the financial sector affects the ultimate goal of monetary policy, namely inflation (Ascarya, 2012). Meanwhile, in sharia monetary policy, the BI rate is used as a reference in yields in the SBIS (Bank Indonesia Sharia Certificate).
SBIS yields are transmitted to PUAS so that SBIS will affect the ROR (rate of return) on PUAS and affect TPF (Third Party Funds) as well as PLS (profit loss sharing) financing in Islamic banking. As with conventional banking, transmission from Islamic banking and the real sector can affect the ultimate target of monetary policy, namely inflation (Ascarya, 2012). Furthermore, SBIS is an important indicator of Islamic monetary economic policy, especially in Indonesia, considering that in a country with a dual banking system such as Indonesia, there are significant differences between Islamic and conventional monetary instruments. One of fundamental elements of Islamic monetary is the lawfulness of transactions and the avoidance of instruments from usury (interest) so its necessary to find an instrument that can accommodate this, SBIS is a monetary instrument developed on the basis of contracts or agreements taken from the treasures of Islamic economics such as wadi'ah and jualah (Ascarya, 2012), thus the existence of SBIS is an important thing in the course of the development of sharia monetary economic policy, especially in Indonesia.
In Macroeconomics, one of the main policies that play a role in controlling the direction of the economy in accordance with the objectives of the Macroeconomics is monetary policy. The policy held by the central bank of a country is the key in regulating economic stability which will also have an impact on the real condition of a country's economy (Muhammad et al., 2017). In several theories, such as that revealed by Chouwdury (2005)  Previous researchers have done a lot of analysis and concept development on how data macroeconomic factors become a forecasting medium in regulating the growth and stability of a country's economy, such as examining the relationship and relationship between the capital market or stock market and economic growth (Cave et al., 2020;Coşkun et al., 2017;Ho, 2018;Muharam et al., 2019;Nathaniel et al., 2020;Nguyen & Bui, 2019;Oprea & Stoica, 2018;Osaseri & Osamwonyi, 2019 ;Pradhan, 2018), inflation and economic growth (Abuoliem et al, 2019;Agbonlahor, 2014;Balk et al, 2020;Bayuni & Srisusilawati, 2018;Denbel et al, 2016;Fountas et al, 2002;Oliinyk et al, 2020;A. Uddin et al, 2019;Ullah et al, 2020), as well as currency exchange rates and economic growth (Babubudjnauth, 2020;Chan et al, 2019;Feriyantoa, 2020;Mlambo, 2020;Oliinyk et al., 2020;Park, Ryu, & Lee, 2019).

Industrial Production Index (IPI)
One of the most important indicators to monitor the rise and fall of industrial sector output, including in Indonesia, is the Industrial Production Index (IPI). This index is also an important proxy used to describe a country's economic growth if you want to see data with a monthly frequency due to the absence of GDP data in that frequency (Ayuniyyah et al., 2013). Fountas et al. (2002) and Ascarya (2012) also use this index as a proxy that shows the real condition of the sector and real production output in a country's economy. Based on the need for a proxy that shows and describes the economic condition of a country with monthly data frequency, this study also uses IPI as a proxy for the real economy or production output in a country as a variable that will be predicted using macro indicator variables and monetary policy in dual banking system.

Capital Market and Economic Condition
Several previous studies have tried to find the relationship between the capital market or the stock market with economic growth. In general, it can be concluded that the capital market encourages and has a positive impact on economic growth (Osaseri & Osamwonyi, 2019;Cave et al., 2020;Oprea & Stoica, 2018;). Other researchers, for example, try to explore the causal relationship between the two variables where Pradhan (2018) states that the two variables are related both in one direction and reciprocally, while Muharam et al. (2019) states that the causal relationship will differ between the countries  (2019), the economic crisis condition factor may change the impact to turn negative even though in general conditions the effect will have a positive impact. Coşkun et al., (2017) mentions that in aggregate the capital market has a positive effect, but there are also instruments that have a negative impact on growth, such as government bonds in the financial market.
The stock price index (stock composite index) in this study is a description of macroeconomic indicators from the financial market sector, namely the capital market or stock market as research conducted by Ho (2018) when examining the relationship between the stock market and economic growth. The research concluded that both in the short and long term, the composite index on the stock market in Hong Kong has a positive effect on economic growth.

Inflation and Economic Conditions
In economic theory, one of the things to be studied is the interpretation of the relationship between inflation and economic output. Inflation is indeed the most common indicator in the study of various economic aspects, ranging from exchange rate stability (Oliinyk et al., 2020) until special economic studies such as the green economy (Ullah et al., 2020). In the context of economic growth, one of the best known assumptions is that put forward by Milton Friedman (1977) that inflation has a negative impact on production output because inflation causes uncertainty in the real economy. In previous empirical research, it was stated that inflation has a negative relationship to growth (Denbel et al., 2016) and rising inflation will reduce the potential for economic growth and make the economy inefficient (Fountas et al., 2002).

Exchange Rates and Economic Conditions
In predicting the economic condition of a country, the exchange rate is also a commonly used macro indicator variable. Study by Rodrik (2008) on economic growth. These results are slightly different from other researchers such as Feriyantoa (2020) which states that the negative effect only occurs in short-term behavior, while in the long term it does not significantly affect economic conditions, in more detail Babubudjnauth (2020) detailing that in the short-term economic growth model, the exchange rate will contract growth and in the long run will expand growth, while specifically for the manufacturing sector, the opposite is true. However, it is simultaneously concluded that the exchange rate has a positive effect on the economy of a country in the long run.

Monetary Policy Transmission in the Dual Banking System
In several theories, it is stated that both conventional economics and Islamic economics have the same monetary objectives, the difference is in the application of transactions and usury policies in them (Muhammad et al, 2017). Monetary policy itself is a control over money supply and demand where in conventional economics it is done by manipulating and regulating interest rates while in islamic economics, interest which is another form of riba is strictly prohibited both in direct and indirect transactions (Khan, 2019;Priyono, 2022). Thus, the policy focuses on regulating other needed instruments and being able to maintain stability in local currency exchange rates, maintain stable growth, increase income, increase savings, maintain price stability (inflation), and reduce unemployment (MA Uddin & Halim, 2015). Meanwhile, Chapra (1985) emphasizes that the goal of Islamic monetary is to welfare (well-being) at the most optimal growth, distribution justice (distributive justice) and stabilization of the value of money. The ability of a monetary policy to regulate money supply and demand and its ability to have an impact on the ultimate goals of monetary policy through various channels is called monetary policy transmission (Mishkin, 2004;Bayuni & Srisusilawati, 2018).

Money Supply
Monetary Economics briefly studies about the nature, function and influence of money on economic activity. In conventional monetary theory, Tobin (1965) is known as the first economy to include the money variable and relate it to economic growth through capital accumulation. In short, money has many classifications. Based on its scope and liquidity, Bank Indonesia classifies money in a narrow and broad sense, currency in the hands of the public and demand deposits denominated in rupiah are money in a narrow

RESEARCH METHOD
The research was conducted using a quantitative method with time series analysis with a Vector Error Correction Model (VECM) approach with data sourced from secondary data obtained from the website of Bank Indonesia and the Central Bureau of Statistics with a monthly data frequency from January 2013 to February 2020 so that there are 86 observations. The data used is using ratio data scale and processed using Eviews 10 software. The proxy and operational variables can be seen in the following

Data Stationarity
In analyzing time series data, the first thing to do is to look at the stationarity of the data through the unit root test of each variable in the study. In this study, the authors conducted a Unit Root Test using the Augmented Dickey Fuller (ADF) Test method and the Phillip-Peron Unit Root Test method. And as a complement if there is a difference in results between ADF and Phillip-Peron, the researcher adds the Kwiatkowski-Phillips-Schmidt-Shin (KPSS) unit root test as a complement. The results of the unit root test of the research variables can be seen in table 2 below:

Table 2 Output Unit Root Test (Unit-Root Test)
From the table it can be concluded that the variables of this study are not stationary at the Level level and stationary at the first difference level so that they are suitable to be continued to the next stage in the development of the VECM model, namely knowing the optimum lag length and cointegration test.

Optimum Lag Length and Cointegration Test
After the unit root test was carried out, the researcher carried out a process to find the optimum lag length that could be used in making the VECM model. And based on this process, the optimum lag length can be seen in The next process is continued by conducting a cointegration test as an important part of the VECM approach, because this VECM approach uses data that is not stationary at the level and stationary at the 1st difference level but has cointegration. After testing, although the data is not stationary at the level level, it turns out to have cointegration at level I(0) as the results of cointegration testing using the Johansen Test using Trace statistics and Maximum Eigen-Value as a benchmark, it is known that there has been one cointegration in I (0) as shown in table 4. From the results above, it is known that there is a cointegration model that can be used in the modeling to determine the long-term behavior of the VECM model to be formed.

VECM Models
After knowing that the data has met the requirements for the VECM modeling, then be seen that the volatility of the shock is still within the stability critical line so that it can be concluded that the VECM model is stable. Furthermore, in this study, we tried to find out the combination of the effects of the variables contained in the model, the researchers tried to do a Wald test with a combination of several variables. First, we try to identify the effect of macroeconomic indicators by combining several proxies that represent macro indicators such as the JCI, inflation and exchange rates and obtained. Meanwhile, when trying to do a Wald test by combining proxies related to monetary policy instruments in the dual banking system, the following results were obtained: Null Hypothesis: C(6)=C (7) In this study, on the aspect of macro indicators in the long term, the resulting model tends to be consistent with previous studies. Stock market prices are still considered capable of predicting and encouraging economic growth (Osaseri & Osamwonyi, 2019;Cave et al., 2020;Ho, 2018). In the case of exchange rates, the study is in line with the results of the studyChan et al., (2019) that in the long term the strengthening of the domestic currency exchange rate or undervaluation will encourage the economy, because this will trigger export activities and trigger production activities so as to increase production output. Meanwhile, inflation in the short term looks as if it shows an improvement in the economy, but in the long term it will be corrected and become an indicator of economic inhibition if it continues to increase, so it is necessary to continue to carry out a targeted inflation strategy so as not to have negative implications for the economy.

Figure 4 Stability Test of Recursive Estimates with CUSUM Test
While on monetary policy instruments, what needs to be highlighted in the short term is the impact of M2 and SBIS, because the short-term response of the economy is negative, in this case M2 with its not very liquid nature is indeed difficult to get a positive response in the short term, while the Profit Rate, A high SBIS will have a negative impact on real economic activity, so the best policy when economic conditions are down, the right policy is to reduce the SBIS profit rate in order to stimulate people to keep active in the real economy. Meanwhile, in the long term, it is recommended to support policies that support the effectiveness and control of money supply conditions both M1 and M2 as well as policy advice offered by Denbel et al., (2016) and Agbonlahor (2014). The focus of money supply policy in difficult economic conditions must focus on M1 which is more real and liquid in encouraging economic activity, given that based on the results in the model, M1 plays a major role in encouraging the economy in both the short and long term. It is also in line with the Islamic economic philosophy which focuses on the real economy. Meanwhile, the percentage of SBIS profit sharing in the long term will become an instrument that is able to strengthen the economy while still having to evaluate all sharia monetary operations in order to be able to print sharia instruments with new innovations in order to be able to encourage a stronger economy.

Robustness Test
To ensure the robustness of the model in this study, we tried to test the robustness of the model by using model variation techniques or using multimodels (Young & Holsteen, 2017) as explained by Neumayer & Plümper (2017)

CONCLUSION
In the short and long term, the Capital Market Variables (CSPI) and the exchange rate have a positive impact on economic output, while inflation has a positive impact on the short term but has a negative impact in the long term. in terms of macro indicators have not had a significant impact. Meanwhile, from the aspect of the dual banking monetary policy instrument, the M1 variable has a positive impact both in the short term and long term, while the M2 and SBIS variables have a negative impact in the short term but have a positive impact in the long term. has not provided a positive impact on the economy, both in the short and long term. From the research, it is suggested to policy makers to increase their attention to innovation in developing sharia monetary instruments and to reform monetary policy so that the impact of the policies carried out is more able to have a real impact in maintaining stability and encouraging the country's economic growth.
The research certainly has many limitations, including the lack of comprehensiveness of indicators from each group of variables so that the resulting model tends to be broader and more general, it is hoped that further researchers can focus more on researching and developing empirical studies of each existing indicator by adding other indicators. which is more relevant so as to be able to provide a more in-depth picture of each subject matter of the existing variables, both macro indicators and monetary policy instruments, especially indicators for Islamic monetary instruments.