Macroeconomic Determinants of the Capital Market in Indonesia: A Comparative Analysis between Sukuk and Bonds Markets

Abstract

Background: Sukuk is one of the Islamic financial instruments that are used to provide domestic financing for fiscal deficit. Sukuk could support domestic financing and ensure the impacts of the volatility of the business cycle to the promotion of economic growth in a country. The purpose of this study is to empirically explore the macroeconomic determinants of Islamic-(sukuk) and conventional-bond markets in Indonesia. It also attempts to assess the short-and long-run equilibrium between the macroeconomic determinants and both Islamic and conventional bonds markets in Indonesia. This is the first study to adopt the cointegration and VECM approaches to investigate empirically the sovereign sukuk and bonds markets in the largest Muslim populous country, Indonesia.