The Effect of Real Business Cycle on Islamic Capital Market Resilience in Indonesia
DOI:
https://doi.org/10.18196/ijief.v8i1.20892Keywords:
Real Business Cycle (RBC), Islamic Capital Market (ICM), Islamic Financial, Resilience, IndonesiaAbstract
In an era of increasing economic volatility and financial uncertainty, understanding the impact of the Real Business Cycle (RBC) on the Islamic Capital Market (ICM) is crucial for enhancing the resilience of Islamic financial systems, which are increasingly significant in global finance. This research is important because understanding the impact of the Real Business Cycle (RBC) on the Islamic Capital Market (ICM) is crucial for enhancing the resilience of Islamic financial systems, which are increasingly significant in global finance. The research aims to investigate the extent of co-movement and the effect of the Real Business Cycle (RBC) on the Islamic Capital Market (ICM) in Indonesia. The methodology begins with the Hodrick-Prescott (HP) Filter to identify trends and cycles in the RBC and ICM data. Next, cross-correlation analysis is used to measure the co-movement between the two, determining how RBC fluctuations affect the Islamic capital market. Finally, the Vector Autoregressive (VAR) and Vector Error Correction Model (VECM) are applied to explore both the short-term and long-term causal relationships between RBC and ICM, offering insights into immediate and persistent effects on the market. The findings reveal a significant relationship between Real Business Cycle (RBC) indicators and the Islamic Capital Market (ICM), with notable shifts in investor behavior and varying impacts of GDP, unemployment, and exchange rates on Islamic financial instruments like Jakarta Islamic Index (JII) and Sukuk.
References
Anderson, L. (1993). Gross Domestic Product. In The Concise Encyclopedia of Economics. Library of Economics and Liberty.
Arrow, K. J. (1951). An Extension of the Basic Theorems of Classical Welfare Economics. Berkeley Symposium on Mathematical Statistics and Probability, 2, 507–532.
Arshad, S. (2017). The Relationship Between Islamic Stock Markets and Business Cycles: A Regional Perspective. In Islamic Capital Markets: Volatility, Performance and Stability (1st ed., pp. 45–65). Palgrave Macmillan. https://doi.org/10.1007/978-3-319-33991-7
Baral, N., & Stern, M. J. (2011). Capital stocks and organizational resilience in the Annapurna Conservation Area, Nepal. Society and Natural Resources, 24(10), 1011–1026. https://doi.org/10.1080/08941920.2010.495372
Batu, M. (2017). International worker remittances and economic growth in a Real Business Cycle framework. Structural Change and Economic Dynamics, 40, 81–91. https://doi.org/10.1016/j.strueco.2016.12.004
Becker, R., & Wang, Y. (2013). Measuring the Chinese business cycle Measuring the Chinese business cycle. Applied Economics, 45(28), 3988–4003. https://doi.org/10.1080/00036846.2012.744135
Ben Ayed, W., Lamouchi, R. A., & M. Alawi, S. (2021). Does the deposit structure affect Islamic bank’s maturity transformation activities? The implications of IFSB liquidity guidelines. International Journal of Islamic and Middle Eastern Finance and Management, 14(3), 444–462. https://doi.org/https://doi.org/10.1108/IMEFM-05-2019-0209
Berkes, F., & Folke., C. (1992). A systems perspective on the interrelations between natural, human-made and cultural capital. Ecol. Econ., 5(1), 01–08.
Biswas, R. K., Kabir, E., & Rafi, R. B. R. (2019). Investment in Research and Development Compared to Military Expenditure: Is Research Worthwhile? Defence and Peace Economics, 30(7), 846–857. https://doi.org/10.1080/10242694.2018.1477235
Brunckhorst, D. (2001). Building capital through bioregional planning and biosphere reserves. Ethics in Science and Environmental Politics, 1(1), 19–32. https://doi.org/10.3354/esep001019
Carpenter, S., Walker, B., Anderies, J. M., & Abel, N. (2001). From Metaphor to Measurement: Resilience of What to What? Ecosystems, 4(8), 765–781. https://doi.org/10.1007/s10021-001-0045-9
Cupian, Muasia, R., & Suparman, E. (2020). The Influence of Macroeconomics Indicators to the Growth of State Islamic Bonds (Sukuk) in Indonesia. Equilibrium Jurnal Ekonomi Syariah, 8(1), 167–178. https://doi.org/10.2991/ahsr.k.200723.014
Debreu, G. (1951). The Coefficient of Resource Utilization. Econometrica, 19, 273–292.
Dobrescu, M., Badea, L., & Paicu, C. (2012). Business cycle theories and their relevance to the current global crisis. Procedia - Social and Behavioral Sciences, 62(February 2014), 239–243. https://doi.org/10.1016/j.sbspro.2012.09.038
Folke, C., Hahn, T., Olsson, P., & Norberg, J. (2005). Adaptive governance of social-ecological systems. Annual Review of Environment and Resources, 30, 441–473. https://doi.org/10.1146/annurev.energy.30.050504.144511
Garces, E. J., & Adriatico, C. G. (2019). Correlates of High Technology Exports Performance in the Philippines. Open Journal of Social Sciences, 07(05), 215–226. https://doi.org/10.4236/jss.2019.75018
Gonzalo, J., & Taamouti, A. (2017). The reaction of stock market returns to unemployment. Studies in Nonlinear Dynamics and Econometrics, 21(4). https://doi.org/10.1515/snde-2015-0078
Hamimi, S., & Ginting, Y. R. F. (2019). The Development Of Islamic Capital Markets In Indonesia. Proceeding International Seminar on Islamic Studies.
Harahap, B. A., Bary, P., & Kusuma, M. A. C. (2018). Working Paper the Determinants of Indonesian Business Cycle the Determinants of Indonesian Business Cycle. Working Paper of Central Bank of Indonesia, 30, 1–41.
Helgadóttir, O. (2021). How to make a super-model: professional incentives and the birth of contemporary macroeconomics. Review of International Political Economy. https://doi.org/https://doi.org/10.1080%2F09692290.2021.1997786
Hodrick, R. J., & Prescott, E. C. (1981). Postwar U.S. Business Cycles: An Empirical Investigation. Journal of Money Credit and Banking, 29(1). https://doi.org/10.2307/2953682
IDX Islamic. (2022). Islamic Capital Market Education. IDX Islamic. https://idxislamic.idx.co.id/en/islamic-capital-market%02education/government-sukuk/%0A
Irfan, M., Kassim, S., Dhimmar, S., Zahid, M., & Fuadi, N. F. Z. (2021). Reaction of Islamic Stock Market To Macroeconomic Variables: a Study of India and Indonesia. Jurnal Ekonomi Dan Bisnis Islam (Journal of Islamic Economics and Business), 7(1), 148. https://doi.org/10.20473/jebis.v7i1.25921
Jaroensathapornkul, J. (2013). Existence of J-Curve between Thailand and ASEAN: A Real Business Cycle Perspective. International Proceedings of Economics Development & Research, 76, 26–33. https://doi.org/10.7763/IPEDR. 2014. V76. 6
Juanda, B., & Junaidi. (2012). Ekonometrika Deret Waktu Teori dan Aplikasi. IPB Press.
Karyatun, S., Waluyo, T., Muis, M., Munir, A. R., & Sumardi. (2021). The Islamic Stock Market and Macroeconomic Relationship. Psychology and Education Journal, 58(1), 265–275. https://doi.org/10.17762/pae.v58i1.769
Kim, K., & Choi, Y.-Y. (1997). Business cycles in Korea: Is there any stylized feature? Journal of Economic Studies, 24(5), 275–293. http://www.emeraldinsight.com/journals.htm?issn=0144-3585&volume=24&issue=5&articleid=846062&show=html
Kuehn, D. (2013). Hayek’s Business-Cycle Theory: Half Right. Critical Review, 25(3–4), 497–529. https://doi.org/10.1080/08913811.2013.853863
Kydland, F. E., & Prescott, E. C. (1982). Time to Build and Aggregate Fluctuations. Econometrica, 50, 1345–1370.
Leamer, E. E. (2012). Gross Domestic Product. In Macroeconomic Patterns and Stories (pp. 19–38). Springer. https://doi.org/10.1007/978-3-540-46389-4_2
Liow, K. H. (2016). Linkages between cross-country business cycles, cross-country stock market cycles and cross-country real estate market cycles. Journal of European Real Estate Research, 9(2), 123–146. https://doi.org/http://dx.doi.org/10.1108/JERER-05-2015-0024
Lucas, R. E. (1980). Methods and Problems in Business Cycle Theory. Journal of Money, Credit and Banking, 12, 696–715.
Lucas, R., & Prescott, E. (1971). Investment Under Uncertainty. Econometrica, 39(5), 659–681. http://links.jstor.org/sici?sici=0012-9682%28197109%2939%3A5%3C659%3AIUU%3E2.0.CO%3B2-0
Mankiw, N. G. (2000). Macroeconomics. WH Freeman.
Morley, J., & Piger, J. (2006). Chapter 3 The Importance of Nonlinearity in Reproducing Business Cycle Features. In Contribution to Economic Analysis (Vol. 276, Issue 05, pp. 75–95). Emerald Group Publishing Limited. https://doi.org/10.1016/s0573-8555(05)76003-x
Oppers, S. E. (2002). The Austrian Theory of Business Cycles: Old Lessons for Modern Economic Policy? IMF Working Papers, 02(2), 1. https://doi.org/10.5089/9781451841770.001
Phillips, P. C. B., & Shi, Z. (2019). Boosting: Why you Can Use the HP Filter. Cowles Foundation Discussion Papers, 60. https://doi.org/10.2139/ssrn.3499037
Plosser, C. I. (1989). Understanding Real Business Cycles. Journal of Economic Perspective, 3(3), 51–77.
Podobnik, B., & Stanley, H. E. (2008). Detrended cross-correlation analysis: A new method for analyzing two nonstationary time series. Physical Review Letters, 100(8). https://doi.org/10.1103/PhysRevLett.100.084102
Prasetyo, I., & Dwianto, R. D. (2018). Economic inclusion of un-bankable micro-scale traders in Indonesian traditional market: Learning from micro-scale traders in Islamic financial cooperative. E3S Web of Conferences, 74(01008), 01–07.
Primartha, T. P., & Diana, N. (2021). Effects of Inflation, Interest, and Exchange Rate on Jakarta Islamic Index 2017-2020. Jurnal Ekonomi Syariah Teori Dan Terapan, 8(2), 147. https://doi.org/10.20473/vol8iss20212pp147-158
Razzak, W. (1997). The Hodrick-Prescott technique: A smoother versus a filter: An application to New Zealand GDP. Economics Letters, 57(2), 163–168. https://doi.org/10.1016/s0165-1765(97)00178-x
Rebelo, S. T. (2005). RBC Models: Past, Present, Future. Scandinavian Journal of Economics, 107(2), 217–238. http://www.kellogg.northwestern.edu/faculty/rebelo/htm/rbc.pdf
Rizvi, S. A. R., & Arshad, S. (2014). Investigating the efficiency of East Asian stock markets through booms and busts. Pacific Science Review, 16(4), 275–279. https://doi.org/10.1016/j.pscr.2015.03.003
Setianingsih, L., & Widyastuti, E. (2020). Does Sukuk, Domestic Investment, Foreign Investment, and Inflation Contribute To Economic Growth in Indonesia? Jurnal Ekonomi Syariah Teori Dan Terapan, 7(12), 2375. https://doi.org/10.20473/vol7iss202012pp2375-2384
Sobarsyah, M., Soedarmono, W., Yudhi, W. S. A., Trinugroho, I., Warokka, A., & Pramono, S. E. (2020). Loan growth, capitalization, and credit risk in Islamic banking. International Economics, 163, 155–162. https://doi.org/https://doi.org/10.1016/j.inteco.2020.02.001
Soelistyo, A. (2017). A Synthesis Keynes-Monetarist and Real Business Cycle Model To Inflation and Unemployment in Indonesia. Journal of Innovation in Business and Economics, 1(01), 27. https://doi.org/10.22219/jibe.vol1.no01.27-40
Stadler, G. W. (1994). Real Business Cycles. Journal of Economics Literatute, 32, 1750–1783.
Stockman, A. C. (1988). Real Business Cycle Theory : a Guide , an Evaluation , and New Directions. Federal Reserve Bank of Cleveland Economic Review, 24(4), 24–47. https://www.clevelandfed.org/en/newsroom-and-events/publications/discontinued-publications/economic-review/1988-economic-review/er-1988q4-real-business-cycle-theory.aspx
Sulistiana, I., Hidayati, & Sumar. (2017). Model Vector Auto Regression (Var) and Vector Error Correction Model (Vecm) Approach for Inflation Relations Analysis, Gross Regional Domestic Product (Gdp), World Tin Price, Bi Rate and Rupiah Exchange Rate. Integrated Journal of Business and Economics, 1(2), 17–32. https://doi.org/https://doi.org/10.5281/zenodo.1147673
Suriani, S., Abd. Majid, M. S., Masbar, R., A. Wahid, N., & Ismail, A. G. (2021). Sukuk and monetary policy transmission in Indonesia: the role of asset price and exchange rate channels. Journal of Islamic Accounting and Business Research, 12(7), 1015–1035. https://doi.org/10.1108/JIABR-09-2019-0177
Takahashi, S. (2020). J. R. Commons’ Business Cycle Theory. Journal of Economic Issues, 54(4), 907–917. https://doi.org/10.1080/00213624.2020.1816121
Vecchi, M. (1999). Real business cycle: A critical review. Journal of Economic Studies, 26(2), 159–171. https://doi.org/10.1108/01443589910258489
Wahyuningsih, A., & Sumantyo, R. (2017). Analysis of Indonesia Business Cycle through Composite Leading Indicator Data Processing for Banking Industry. Jurnal Keuangan Dan Perbankan, 21(4), 589–599. https://doi.org/10.26905/jkdp.v21i4.1553
Yamarone, R. (2012). Gross Domestic Product. In The Trader’s Guide to Key Economic Indicators (3rd ed., pp. 11–46). Bloomberg.
Downloads
Published
How to Cite
Issue
Section
License
Copyright (c) 2025 International Journal of Islamic Economics and Finance (IJIEF)

This work is licensed under a Creative Commons Attribution-ShareAlike 4.0 International License.
License
This journal is based on the work available at http://journal.umy.ac.id/index.php/ijief/ under a license from Creative Commons Attribution-ShareAlike 4.0 International License.
You are free to:
- Share – copy and redistribute the material in any medium or format.
- Adapt – remix, transform, and build upon the material for any purpose, even commercially.
The licensor cannot revoke these freedoms as long as you follow the license terms, which include the following:
- Attribution — You must give appropriate credit, provide a link to the license, and indicate if changes were made. You may do so in any reasonable manner, but not in any way that suggests the licensor endorses you or your use.
- ShareAlike — If you remix, transform, or build upon the material, you must distribute your contributions under the same license as the original.
- No additional restrictions — You may not apply legal terms or technological measures that legally restrict others from doing anything the license permits.
Creative Commons Attribution-ShareAlike (CC BY-SA)
This work is licensed under a Creative Commons Attribution-ShareAlike 4.0 International License.