Monetary Policy Transmission : Does Maintain the Price and Poverty Stability is Effective ?

This study analyzes the effectiveness of monetary policy transmission of emerging market countries, both short and long-term in maintaining economic stability and reducing poverty. The main problem in this paper is that monetary transmission is incapable of controlling the economy and reducing poverty. There are five countries selected such as India, Brazil, China, Russia, and Indonesia. Long-term prediction analysis using Vector Auto Regression (VAR) model is performed to predict five emerging market countries using Regression Panel. It results suggest that monetary policy transmission affecting the number of poor people should be controlled in three stages. In the short-term, the transmission of export variables and inflation controls the number of poor people. In the medium-term, the control of the number of poor people uses variables of inflation and exports while in the long-term uses exports and Gross Domestic Product (GDP). Overall, all economic variables of emerging market countries are greatly influenced by the fluctuations of each country's exports, then by food price stability as measured by food price inflation. The result of regression panel analysis is known that the factor that most influence the poor people in emer ging market country is GDP. Exports also affect poor people such as Indonesia, China, and Russia. Inflation also causes poor people like India and Brazil. The countries that have the most impact on economic fluctuations on the number of poor people are India, Indonesia, China, Brazil, and Russia.


INTRODUCTION
Economic stability is a condition that is reflected in the improved macroeconomic fundamentals.
To support optimal macroeconomic stability and to create a healthy and anticipative monetary policy framework, it is necessary to have the appropriate monetary policy in achieving long-term stability objectives.The monetary policy transmission mechanism is a process whereby a policy created can affect economic growth and inflation within a country.The monetary policy transmission channel is conducted through six channels, such as interest rates, credit, asset prices, corporate balance sheets, exchange rates and expectations (Warjiyo, 2004).
This policy is entirely run by the central bank which is the primary partner of the government in mobilizing and running various economic activities through the policies it establishes.Inflation targeting is a monetary policy framework that is an official statement from the central bank.
The ultimate goal of monetary policy is to achieve and maintain a low inflation rate and announce the inflation target to the public (Warjiyo and Solikin, 2003).The problem that often arises is the monetary transmission mechanism is not by the original purpose even cause shocks and adverse impacts to economic conditions.(Bittencourt 2016).
One of the causes of the negative impact is the lag effect in monetary policy.It encourages the need to understand the mechanism of monetary policy transmission to real economic activities that can be traversed by various channels or channels (Natsir 2011).
The phenomenon of the problem in this research is to see the response of macroeconomic variables to the effectiveness of monetary policy transmission of emerging market countries in the period of study (2000 to 2016).Figure 1 describes the growth of GDP emerging market countries in 2009 decreased from the previous year, India decreased 6.06%, Brazil by 7.19%,China decreased -0.6%, Russia decreased 2%, and Indonesia decreased 8.27% due to global financial shocks and uncertainties.The American economic crisis is increasingly creeping into the global economic crisis because in fact the world's economy is connected to each other, events that occur somewhere will affect elsewhere.
Indonesia also felt the global economic crisis.It is a country that is still very dependent on the flow of funds from foreign investors, with this global crisis is automatically attract foreign investors from Indonesia.The value of Indonesian exports also plays a role as a savior in the global crisis of 2008.
The small proportion of exports to GDP is enough to be a savior in the face of the financial crisis in late 2008.In the Asian region alone, Indonesia is the country with the least negative impact of the crisis compared to other countries.Some say that Indonesia's 'survival' from the onslaught of the US financial crisis is due to the lack of proportion of exports to GDP.
Countries that have high export-to-GDP ratios experience negative economic growth.Figure 2 illustrates the inflation rate in 2008, India rose 8.35%, Brazil rose 5.66%, China rose 6.46%, Russia rose 14.10%, Indonesia 9.77%.It is due to the impact of rising world oil prices and rising fuel due to the effects of the global economic crisis that increases the price of goods.The policy of fuel price hike as an effect of financial tightening will have an impact on overall macroeconomic stability (Senbet, 2016).
Based on the revised 2008 state budget, the assumption of oil price to be the US $ 95 per barrel.With this assumption, the fuel subsidy is calculated as Rp.126 trillion.However, oil prices during 2008 continued to climb and in May has passed the price above the US $ 130. Without a price increase, fuel subsidies will bubble up to Rp. 190 trillion.As a result, there will be a massive budget deficit that will disrupt the realization of the 2008 State Budget.Whereas according to Law No. 16/2008 on APBN(P) 2008 approved by the House of Representatives, the maximum budget of subsidized fuel subsidy is set at Rp 135.1 trillion.Figure 3 describes the decline in the exchange rate in 2010, India decreased -14.25%,Brazil decreased -14.97%, Russia decreased -8.68%, Indonesia decreased -4.35%, (except China rose -0.58% ).  3 describes the decline in the exchange rate in 2010, India decreased -14.25%,Brazil decreased -14.97%,Russia decreased -8.68%, Indonesia decreased -4.35%, (except China rose -0.58% ).The main task of Bank Indonesia is now becoming more focused because it has a single target.
However, in the implementation of this task is quite heavy considering Bank Indonesia cannot fully control the stability of the rupiah.It has only the ability to influence inflationary pressures from the demand side, while supplyside inflation pressure is entirely out of the question.The interest rate channel plays a vital role in the monetary policy transmission mechanism in maintaining inflation.(Wulandari 2012).Transmission problems, as well as monetary policy shocks, tend to affect slower output for more extended periods (Hsing, 2015).
Therefore this paper reviews more how the transmission of monetary policy in emerging market countries.According to the researchers, there are problems in maintaining different economic stability in some countries especially emerging market countries where the value is not stable or still fluctuating.
The Asian economic crisis of 1997 stemming from the disruption of exchange rate stability while the global financial crisis stemmed from the asset price aspect (financial) or stock.Transmission of monetary policy in some countries has a different pattern to the price stability (inflation).The Russian state is still stable in controlling price stability through the maintenance of export stability.The Indian state is still stable in controlling price stability through the maintenance of exchange rate stability.The Chinese state is still stable in controlling price stability through the maintenance of exchange rate stability and exports.Brazil is still stable in controlling price stability through the maintenance of exchange rate stability.The Indonesian state is still stable in controlling price stability through the maintenance of export stability.
In economic control, the monetary policy framework is performed by an approach based on the price of monetary value.Monetary policy with the monetary price pricing approach can have a practical effect on inflation rate control through rate and exchange rate channel (Nguyen, 2015).
Taylor (1995) states that the monetary policy transmission mechanism is the path through which the policy can affect the ultimate goal of monetary policy, national income, and inflation.The monetary policy transmission mechanism occurs through interaction between the Central Bank, banking, and financial sectors, as well as the real sector.The mechanisms can occur through various channels, including direct monetary channels, interest rate lines, credit lines, exchange lines, asset price lines, and expected paths (Pohan, 2008).The interest rate is the key to the monetary transmission mechanism in IS, LM, AD, and AS model.The increase in money stock will lower real interest rates and capital costs as well as increase business investment.
Increased investment will increase aggregate demand.A decrease in the real interest rate will also increase spending on purchases of homes and durable goods.Therefore a decrease in the interest rate due to monetary expansion will increase spending or consumption and aggregate demand.At meager nominal interest rates, monetary expansion will increase expectations of price levels and inflation, consequently the real interest rate down.A decrease in the real interest rate will lower the cost of capital and the cost of holding money, then stimulate business and consumer spending.Increased business and consumer spending will ultimately increase aggregate demand.The flow rate transmission mechanism is shown in the following formula.
Cagan adaptive expectation model starts from the money demand model in the form of exponential function.
 as a measure of the actual inflation rate can be smaller or greater than the value of inflation expectations of the previous period.If The iterative process is to equate the second equation to the first and third equations to the second equation of (1.15), so that the actual inflation rate of period The substitution of the equation (1.8B) to (1.8A) will result in the money demand model as follows: The Cagan model in equation (1.9) can be estimated using the OLS method.If the result of the estimation yields 0 ≤ p ≤ 1 and the value α < 0, then this corresponds to the theory.The fluctuation value [mt -pt] is shown by the coefficient of regression determination of OLS equation (1.9).If the value of the coefficient of determination [R2] is high then there is a high inflation indication or high real money demand fluctuation, otherwise, if the coefficient of determination [R2] is low then there is a low inflation indication or fluctuation of low real money demand.Each variable of monetary policy is very responsive and very influential on the variables of macroeconomic stability research concept can be seen in the following figure 4 and 5.

RESEARCH METHODS
Before The Vector Auto Regression (VAR) methodology is a simultaneous equations model where we have multiple endogenous variables simultaneously.However, each endogenous variable is described by the lag, or past, of its value Other endogenous variables in the model (Gujarati, 2012).According to Rusiadi (2016)

RESULTS AND DISCUSSION
Data analysis before vector autoregression is to test the stationarity of data.The test results showed that all the variables studied were stationary, both in level, first difference and the second difference.Based on the results of VAR analysis known that variables that dominate influencing economic conditions in emerging market countries are the exchange rate that can affect the export, inflation, GDP and interest rate.
Then GDP influences exports, exchange rates, and interest rates.transmission on economic conditions.Exchange rate shocks negatively impact money market Chrigui (2015).
Transmission of exchange rate channels and credit lines is crucial in determining the level of output in Nigeria (Abubabkar, 2013).IRF analysis is used to test the response of variants of each variable to other variables in the short, medium and long-term and the margin of response stability.Here's the IRF result image.The IRF results in the figure above show the surprise effect of each standard deviation of each variable.Brikut summary of response table fromIRFTable 3 shows the response of one variable change to other variables, either \positive, negative and zero or no effect and short-term (1 year), medium term (5 years) and long-term (15 years).Inflation positively responds the movement of the number of poor people within a year.Then within five years the increasing number of poor people will lower exports and GDP and increase inflation, exchange rate, and interest rate.In the long run, the increase in the number of poor will increase exports and interest rates then reduce inflation, exchange rate, and GDP.The result also mentions the monetary policy mechanism of the interest rate impacting monetary transmission and raises the number of poor people, rising inflation in the short, medium and longterm.Westermeier's opinion (2010) also mentions the negative impact of rising interest rates will increase prices and the economy in general.Natsir (2011) stating that interest rates function effectively as operational targets.Maski (2005) which states the reliability of the use of interest rates in the pursuit of policy targets in the form of inflation.The tightening of the interest rate can also protect the Hussain price fluctuations (2014), Hsing (2015) and Hasibuan (2016).Monetary policy should facilitate a favorable investment climate through appropriate interest rates, exchange rate and liquidity and  (Onyeiwu, 2012).The interest rates are mostly related to price increases.These results provide evidence of the existence of functional interest rates in the economy of Zambia (Sheefeni, 2013).The conventional monetary transmission has a continuation against inflation starting from SBI (Magdalena, 2014).Analysis of Vector Error Variance Decomposition (VEVD) It is used in predicting and controlling monetary policy transmission schemes, as measured by changes in the variance of each variable as a recommendation for the control of other variables.The VEVD model is best used for policy making by the government in this case Bank Indonesia as the monetary authority.Table 5 shows that monetary policy transmission affecting the number of poor people should be controlled in three stages.wherein the short run, the number of poor people is controlled by the transmission and inflation.In the medium term the control of the number of poor people using variables of inflation and exports while in the long term using exports and GDP.
All economic variables of emerging market countries are strongly influenced by the fluctuations of each country's exports, then by food price stability as measured by food price inflation.The high role of export to the economy is also put forward by Agu (2014).The monetary shock will be mitigated by the role of exports in stimulating the economy of the United States Haque (2015).Brazil, Russia, India, China and South Africa Controls About 45% of the world economy.In addition to their economy can be seen population and size of the important country.Much of the focus in these countries is based on microeconomics because most former communist countries experience closed decision-making systems (Karimiyan, 2016).
The regression panel is used to test the impact of economic variables on the number of poor emerging market nations, with pooled least square estimates with Fixed Effect Method.
The estimation results are as follows: The result of equation estimation using Fixed Effect Method shows that the number of poor people in emerging market countries is influenced by GDP, food price stability, and export.The results of the discussion in Table 7 states that the factors that most affect the poor in emerging market countries are mostly by the GDP of India, Indonesia, China, and Russia, then exports also affect emerging countries such as Indonesia, China, and Russia.Inflation also causes poor people like India and Brazil.This result is supported by (Kuncoro, 2014) and Agustina (2016) there is a solid relationship between economic growth and poverty which means that when economic growth grows, poverty decreases.
The countries with the most impact on the economic fluctuations on the number of poor people are India with a value of 1.5 coefficiet, then Indonesia with 0.62 coefficient, China with 0.  Prasetyo (2010), Putra (2014) said economic growth affects the number of poor people.Hambarsari (2016) and Alfian (2011) also reinforce the assertion that economic growth and inflation are very strong in influencing the number of poor people.Then Adila (2010) and Aswani (2015) say economic growth and exports affect the poor.

CONCLUSION
There is a response from one variable change to another, both positive, negative and zero or no effect and short-term (1 year), medium-term (5 years) and long-term (15 years).Inflation responds the movement of the number of poor people within a year.Then within five years the increasing number of poor people will lower exports and GDP and increase inflation, exchange rate, and interest rate.In the long run, the increase in the number of poor will increase exports and interest rates then reduce inflation, exchange rate, and GDP.Rising interest rates have an impact on monetary transmission and lead to an increase in the number of poor people, both in the short term, medium and long-term.Transmission of monetary policy affecting the number of poor people should be controlled in three stages, wherein the short run, the number of poor people, is controlled by the transmission of variable export and inflation.In the medium term the control of the number of poor people using variables of inflation and exports while in the long term using exports and GDP.All economic variables of emerging market countries are greatly influenced by the fluctuations of each country's exports, then by food price stability as measured by food price inflation.The factors that most affect the poor in emerging market countries are mostly by the GDP of India, Indonesia, China and Russia, and exports also affect the poor as Indonesia, China, and Russia.Inflation also causes poor people like India and Brazil.The countries with the most impact on the economic fluctuations in the number of poor people are India with coefficient 1.5, Indonesia 0.62, China 0.48, Brazil 0.43 and Russia 0.35..

Figure 1 .
Figure 1.GDP development of emerging market countries Source : Primary Data, Processed

Figure 2 .
Figure 2. Inflation rate of emerging market countries from 2001 to 2014 Source: Data processed

Figure 3 .
Figure 3.The development of the rupiah exchange rate to the dollar from 2000 to 2016 Source: Data processed

Table 2 .
VAR Recommendation result Impulse Response Funcion Source : Data Processe GDP of emerging market countries is affected by the number of poor People and the exchange rate, the exchange rate and GDP influence the interest rate of emerging market countries.
Source : Data ProcessesThe following table 2 describes the results of VAR analysis: Exports of emerging market countries are affected by the exchange rate and GDP, exchange rate and interest rate influence inflation of emerging market countries, exports and foodstuff inflation influence the number of poor people in emerging market countries as an indicator of food security, GDP and SBI influence the exchange rate of emerging market countries Figure 6.

Table 3 .
Interagency Standard Deviation Response in the IRF Model

Table 5 .
Results of Vector Error Variance Decomposition

Table 6 .
Panel Regression Analysis