Impact of monetary policy towards Islamic capital markets: An ARDL-ECM approach

Bismi Khalidin; Armiadi Musa; Nur Ulfia; Mertisa Fardesi

doi:10.18326/muqtasid.v16i2.165-180

Authors

Bismi Khalidin Master’s Degree Program in Islamic Economics, Graduate School Ar-Raniry State Islamic University, Banda Aceh
Armiadi Musa Master’s Degree Program in Islamic Economics, Graduate School Ar-Raniry State Islamic University, Banda Aceh
Nur Ulfia Master’s Degree Program in Islamic Economics, Graduate School Ar-Raniry State Islamic University, Banda Aceh
Mertisa Fardesi Master’s Degree Program in Islamic Economics, Graduate School Ar-Raniry State Islamic University, Banda Aceh

DOI:

https://doi.org/10.18326/muqtasid.v16i2.165-180

Keywords:

monetary policy, Islamic capital markets, ARDL-ECM approach

Abstract

This study examines the dynamic relationship between the Indonesian Sharia Stock Index and selected macroeconomic variables using the autoregressive distributed lag approach combined with the error correction model. The analysis incorporates policy interest rates, interbank rates, exchange rates, inflation, and the Indonesia Composite Index as explanatory factors. The results of the bounds testing procedure indicate the absence of a long-run cointegrating relationship between the Islamic stock index and the included macroeconomic variables. This finding suggests that the Islamic equity market in Indonesia does not follow a stable equilibrium path determined by conventional macroeconomic fundamentals. In the short run, the analysis reveals that monetary policy exerts delayed and complex effects, while the exchange rate shows little influence on the Islamic stock index. The Indonesia Composite Index emerges as the most significant driver, highlighting the importance of overall market sentiment and domestic equity performance in shaping the dynamics of sharia-compliant stocks. Interestingly, inflation and the interbank rate, although initially included in the model, were excluded in the final estimation due to their lack of measurable impact within the study period. These findings emphasize that the Indonesian Sharia Stock Index is largely influenced by short-term market fluctuations and domestic equity conditions, rather than by long-run macroeconomic fundamentals

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