Analyzes the Impact of Monetary Variables and Fintech on Financial System Stability in Indonesia: The Error Correction Model

Abstract

Purpose — The objective of this study is to examine how monetary variables and financial technology affect the stability of Indonesia's financial system.

Method — The study analyzed data from 2018.1 to 2022.12 using the Error Correction Model (ECM) regression analysis method, drawing on data from the Indonesian Banking Statistics, Payment System Statistics and Bank Indonesia (bi.go.id)

Result — The results of the study showed that inflation and the money supply had a positive and significant impact on financial system stability in the long run, while having a positive but insignificant impact in the short run. Interest rates had a positive but insignificant impact on financial system stability, both in the short and long term. Exchange rates had a negative and insignificant impact on Financial System Stability in both short and long terms. E-money had a negative and significant impact in the long run, while having a positive but insignificant impact in the short term on financial system stability. TKB-Fintech had a negative and insignificant impact in the long run, while having a positive and significant impact in the short term on financial system stability. TWP-Fintech had a positive but insignificant impact on Financial System Stability in both the long and short term. Lastly, P2P Lending had a positive and significant impact on both the long and short term financial system stability. This study provides a significant contribution to the literature on the influence of monetary variables and fintech on financial system stability. The study also provides policy implications for regulators and fintech industry players.

Novelty — To assess financial system stability, the study considered several variables, including inflation, money supply, interest rates, exchange rates, e-money, TKB-Fintech, TWP-Fintech, and P2P Lending.