The Impact of Macroeconomic Variables on the Contingent Built-in Inflation; Evidence from Indonesia

Authors : Prabhanshu Sharma; Frozan Ashoori

Volume/Issue : Volume 8 - 2023, Issue 10 - October

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This paper examines the relationship between Exchange rates, GDP, and Government expenditure as macroeconomic variables on the Inflation of Indonesia which is struggling with increased prices of goods and services as it has been a persistent problem in Indonesia for many years. In 2023, it is so far at 5.47% which is above the target set by the Central Bank of Indonesia of 2-4%. With the data taken from the World Bank and IMF, the methodology consists of stationarity check, Cointegration analysis, and Error Correction Model to identify the long-run nexus among variables. The estimation result found that GDP is positively correlated with Inflation, Exchange rate is positively correlated with mild effects on inflation and government expenditure is negatively correlated with Inflation.

Keywords : Built-in Inflation, ARDL Bounds Cointegration, Error Correction Model, Currency Depreciation


Paper Submission Last Date
31 - December - 2023

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