Investment and Monetary Policy in a Dual System Economy: Lessons from Indonesia’s Post-COVID Period

Abstract

The economy of a country whose global conditions are uncertain, investment is one of the important indicators in assessing the economic health of a country. Investment is the beginning of economic development activities to achieve good economic growth. To encourage economic growth the government needs to formulate and implement monetary policy. Monetary policy is determined by the money supply and the setting of interest rates (BI Rate) using monetary policy instruments including open market operations and discount rates. As a country that implements a dual monetary operation system, Bank Indonesia establishes dual monetary operations, namely conventional monetary operations and Islamic monetary operations. This study aims to analyze the impact of conventional monetary policy and Islamic monetary policy on investment in Indonesia which can provide insight for investors in making decisions to invest. This type of research is quantitative research using secondary data obtained from several sources, namely Bank Indonesia (BI) and Ministry of Investment and Downstream/BKPM. The data collection technique in this study is the documentation method. The data analysis technique uses the analysis method Autoregressive Distributed Lag (ARDL) with Eviews 12 software. The results of this study indicate that conventional open market operation and Islamic open market operations have a significant effect on investment in the long term and short term. While the discount rate has no significant effect on investment in the long term but has a significant effect in the short term.