Inter CAFE

International Centre for Applied Finance and Economics

Title : Interest versus Profit-Loss Sharing Credit Contract: Effciencyand Welfare Implications
Authors : Iman Sugema and Toni Bakhtiar
Publisher : European Journal of Scientific Research ISSN 1450-216X Vol.41 No.4 (2010), pp.560-569 © EuroJournals Publishing, Inc. 2010

In this paper we attempt to answer a fundamental question of whether a profit-loss sharing (PLS) based banking system can be welfare improving than an interest based banking system by developing a rigorous theoretical modelling. In the framework of production technology we firstly show that under production certainty and competitive market both PLS and interest based systems are efficient and just. However, under an uncertain situation due to a productivity shock, we prove that only the PLS system is just, since it fairly distributes the risk at individual level amongst lender and borrower. We verify our result by quantifying the effects on income distribution for both lender and borrower. Two indicators, namely the standard error of distribution and Gini ratio are considered. We also propose a mechanism that will improve the performance of a PLS system from capital owners perspective by introducing a so-called risk pooling bank. We prove that such a bank absorbs all the risk encountered by the capital owners and thus maintains their income distribution, and at the same time reduces the risk faced by borrowers.

Title : Monetary Policy in Managing Inflation in Indonesia: A Linear Rational Expectations Model
Authors : Jaenal Effendi, Iman Sugema and Toni Bakhtiar
Publisher : International Research Journal of Finance and Economics
ISSN 1450-2887 Issue 45 (2010)
© EuroJournals Publishing, Inc. 2010

This paper assesses the (in)effectiveness of monetary policy in managing inflation by employing a linear rational expectations framework. Inflation targeting is currently the main flagship of the Indonesian monetary authority and such objective is carried out within a nearly perfect open economy which is succeptible to changes in external economic situations. We consider a macroeconomic model described by a couple of structural equations which consist of several exogenous variables as shock generators. The model is then solved by implementing undetermined coefficient methods. A series of simulation based on the state space representation of the model with respect to an impulse response function is performed to highlight some of key features of current inflation trends. It is shown that monetary policies (interest rate as operating policy) can effectively affect inflation in the short run, but it has limited power in the longer run. Furthermore, its effectiveness is hampered by the so called fiscal dominance and adverse global shocks. Thus, under such a situation it would be difficult for the monetary authority to set a credible inflation target.

Title : Consumer Price Index for the Poor (CPI-P): An Empirical Analysis of Indonesia
Authors : M. Iqbal Irfany, Ade Holis, Iman Sugema and Toni Bakhtiar
Publisher : International Research Journal of Finance and Economics
ISSN 1450-2887 Issue 58 (2010)
© EuroJournals Publishing, Inc. 2010

Prices play an important role in income distribution. Since people differ in terms of
consumption patterns, the effect of the price changes (inflation) will be different from one household to another. The aim of this paper is to develop an experimental price index for the poor in Indonesia to determine whether the index would be the same to the overall consumer price index (CPI). By implying Laspeyres price index, the finding shows that there is a significant diffrence between CPI for the poor (particularly in rural area) and conventional CPI of overall population during the end of 2006 until the end of 2009. It is then the poor households in rural area would be hurt more from the inflation because of the significant increase in food prices, which occurred in that period. This empirical judgment suggests the government should aware of the price stability of the basic needs, which are very sensitive for the poor.

Title : The Impact of Inflation on Rural Poverty in Indonesia:an Econometrics Approach
Authors : Deniey Adipurwanto, Toni Bakhtiar, Ade Holis, Iman Sugema and Toni Irawan
Publisher : International Research Journal of Finance and Economics
ISSN 1450-2887 Issue 58 (2010)
© EuroJournals Publishing, Inc. 2010

This research aims to analyze the impact of inflation on poverty in national level, urban and rural levels. Moreover, the research also measures the contribution of each group of commodity inflation to poverty level and the magnitude of its impact on urban and rural poverty levels. We employ consumer demand theory to measure the elasticity and so-called price index for the poor (PIP). The elasticity is measured from Indonesian National Household Survey (SUSENAS) and then we use consumer price index for 7 groups of commodity (foods; processed foods, beverages and tobacco; housing; water, gas, electricity and fuel; cloths and wearing apparel; health, education, sport and recreation; and transportation, communication and financial services) to estimate PIP. The results suggest that rural poor households are more vulnerable to economic shocks, especially inflation. In more detailed analysis, price fluctuation on foods and its products has larger impact on poverty relative to non-food commodity. Again, rural poor households will experience more severe impact due to price fluctuation on foods. Furthermore, the magnitude of PIP shows that in the last three years, the inflation has larger impact on poor households both in rural and urban area relative to non-poor household.

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