Main Article Content
Abstract
Abstract
Purpose – This paper analyzes the fiscal and monetary policies to control the inflation rate in Indonesia.
Methods – This study uses a vector error correction model (VECM) to estimate the inflation model based on the annual data from 1991-2020.
Findings – The results present the significant effects of fiscal and monetary variables on the inflation rate. These findings reveal that the fiscal and monetary policies are inflationary in this country. Specifically, government spending and narrow money significantly contribute to the increase in the inflation rate. The research also finds the impacts of those variables have occurred over a long period. This study asserts that the government budget deficit does not affect the domestic price level. This paper concludes that domestic inflation is closely related to both the fiscal and monetary financial sectors.
Implication – The government, as well as the central bank, should apply prudent economic policies to control the inflation rate.
Originality –This paper confirms the Fiscal Theory of Price Level (FTPL) as well as the quantity theory of money or the Cambridge equation.
Abstrak
Tujuan – Artikel ini menganalisis kebijakan fiskal dan moneter untuk mengendalikan laju inflasi di Indonesia.
Metode – Penelitian ini menggunakan model VECM untuk menganalisis model inflasi berdasarkan data tahunan dari tahun 1991-2020.
Temuan – Hasil analisis menunjukkan pengaruh signifikan variabel fiskal dan moneter terhadap tingkat inflasi. Temuan ini mengungkapkan bahwa kebijakan fiskal dan moneter bersifat inflasioner. Secara khusus, pengeluaran pemerintah dan uang sempit berkontribusi secara signifikan terhadap peningkatan tingkat inflasi. Penelitian ini juga menemukan bahwa dampak dari kebijakan tersebut telah terjadi dalam jangka waktu yang lama. Studi ini juga menemukan bahwa defisit anggaran pemerintah tidak mempengaruhi tingkat harga domestik. Hasil penelitian ini menyimpulkan bahwa inflasi domestik terkait erat dengan sektor keuangan fiskal dan moneter.
Implikasi – Pemerintah serta bank sentral harus menerapkan kebijakan ekonomi yang hati-hati dan bersifat ketat untuk mengendalikan tingkat inflasi.
Orisinalitas – Hasil studi ini mendukung teori fiskal penyebab inflasi (Fiscal Theory of Price Level) dan teori kuantitas uang atau persamaan Cambridge.
Keywords
Article Details
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References
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- Auerbach, A. J., Gale, W. G. And Harris, B. H. (2010) 'Activist Fiscal Policy', Journal Of Economic Perspectives, 24(4), Pp. 141–164.
- Berument, H. And Doan, B. (2003) 'Openness And The Effectiveness Of Monetary Policy: Empirical Evidence From Turkey', Applied Economics Letters, 10(4), Pp. 217–221. Doi: 10.1080/1350485022000015842.
- Bhattacharya, R. (2014) 'Inflation Dynamics And Monetary Policy Transmission In Vietnam And Emerging Asia', Journal Of Asian Economics, 34, Pp. 16–26.
- Bozkurt, C. (2014) 'Money, Inflation And Growth Relationship: The Turkish Case', International Journal Of Economics And Financial Issues, 4(2), Pp. 309–322.
- Bukhari, Z. And Yusof, Z. (2014) 'Macroeconomic Effects Of Fiscal Policy In Malaysia : Real Or Inflationary ?', In Proc. Of The Second Intl. Conf. On Advances In Social Science, Management And Human Behaviour. Zurich, Switzerland: Institute Of Research Engineers And Doctors, Usa, Pp. 204–207.
- Burstein, A. T. (2006) 'Inflation And Output Dynamics With State-Dependent Pricing Decisions', Journal Of Monetary Economics, 53(7), Pp. 1235–1257. Doi: 10.1016/J.Jmoneco.2005.05.006.
- Deev, O. And Hodula, M. (2016) 'The Long - Run Superneutrality Of Money Revised : The Extended European Evidence', Review Of Economic Perspectives, 16(3), Pp. 187–203. Doi: 10.1515/Revecp-2016-0012.
- Dicky, D. . And Fuller, W. A. (1981) 'The Likelihood Ratio Statistics For Autoregressive Time Series With A Unit Root', Econometrica, 49(4), Pp. 1057–1072.
- Domowitz, I. And Elbadawi, I. (1987) 'An Error Correction Approach To Money Demand: A Case Of Sudan', Journal Of Development Economics, 26(2), P. 257–375. Doi: Doi.Org/10.1016/0304-3878(87)90029-0.
- Duncan, R. And Martínez-García, E. (2015) Forecasting Local Inflation With Global Inflation : When Economic Theory Meets The Facts. Working Paper No. 235. Federal Reserve Bank Of Dallas, Dallas.
- Enders, W. (2010) Applied Econometric Time Series. 3rd Ed. New York: John Wiley & Sons.
- Engle, R. F. And Granger, C. W. J. (1987) 'Co-Integration And Error Correction: Representation, Estimation, And Testing', Econometrica, 55(2), Pp. 251–76.
- Fakher, H. (2016) 'The Empirical Relationship Between Fiscal Deficits And Inflation (Case Study: Selected Asian Economies)', Iranian Economic Review, 20(4), Pp. 551–579.
- Falahi, M. And Hajamini, M. (2017) 'Asymmetric Behavior Of Inflation In Iran: New Evidence On Inflation Persistence Using A Smooth Transition Model', Iranian Economic Review, 21(1), Pp. 101–120.
- Feridun, M. And Adebiyi, M. A. (2005) 'Forecasting Inflation In Developing Economies: The Case Of Nigeria', International Journal Of Applied Econometrics And Quantitative Studies, 2(4), Pp. 103–132.
- Gali, J. (2010) 'Inflation Pressures And Monetary Policy In A Global Economy', International Journal Of Central Banking, 6(1), Pp. 93–102.
- Ghosh, A. (2014) 'How Do Openness And Exchange-Rate Regimes Affect Inflation?', International Review Of Economics & Finance, 34, Pp. 190–202.
- Gupta, R. And Uwilingiye, J. (2008) Time Aggregation, Long-Run Money Demand And The Welfare Cost Of Inflation. 2008–25. Pretoria, South Africa.
- Hamilton, J. D. (2012) 'Import Prices And Inflation', International Journal Of Central Banking, 8(1), Pp. 271–280.
- Heidari, H. And Bashiri, S. (2010) 'Inflation And Inflation Uncertainty In Iran: An Application Of Garch-In-Mean Model With Fiml Method Of Estimation', International Journal Of Business And Development Studies, 2(1), Pp. 131–146.
- Hossain, A. (2005) 'The Sources And Dynamics Of Inflation In Indonesia: An Ecm Model Estimation For 1952-2002', Applied Econometrics And International Development, 5(4), Pp. 93–116.
- Hossain, A. A. (2010) 'Monetary Targeting For Price Stability In Bangladesh: How Stable Is Its Money Demand Function And The Linkage Between Money Supply Growth And Inflation', Journal Of Asian Economics, 21(6), Pp. 564–578.
- Johansen, S. (1991) 'Estimation And Hypothesis Testing Of Cointegration Vectors In Gaussian Vector Autoregressive Models', Econometrica, 59(6), Pp. 1551–1580.
- Kandil, M. (2005) 'Money, Interest, And Prices: Some International Evidence', International Review Of Economics And Finance, 14(2), Pp. 129–147. Doi: 10.1016/J.Iref.2003.11.013.
- Khundrakpam, J. K. (2010) 'Fiscal Stimulus And Potential Inflationary Risks : An Empirical Assessment Of Fiscal Deficit And Inflation Relationship In India', Journal Of Economic Integration, 25(4), Pp. 703–721.
- Lin, H. Y. And Chu, H. P. (2013) 'Are Fiscal Deficits Inflationary', Journal Of International Money And Finance, 32, Pp. 214–233. Doi: Dx.Doi.Org/10.1016/J.Jimonfin.2012.04.006.
- Mackinnon, J. G., Haug, A. And Michelis, L. (1999) 'Numerical Distribution Functions Of Likelihood Ratio Tests For Cointegration', Journal Of Applied Econometrics, 14(5), Pp. 563–577.
- Mohanty, D. And John, J. (2015) 'Determinants Of Inflation In India', Journal Of Asian Economics, 36, Pp. 86–96. Doi: 10.1016/J.Asieco.2014.08.002.
- Naz, F., Mohsin, A. And Zaman, K. (2012) 'Exchange Rate Pass-Through In To Inflation: New Insights In To The Cointegration Relationship From Pakistan', Economic Modelling, 29(6), Pp. 2205–2221.
- Nguyen, V. B. (2015) 'Effects Of Fiscal Deficit And Money M2 Supply On Inflation: Evidence From Selected Economies Of Asia', Journal Of Economics, Finance And Administrative Science. Aedv, 20(38), Pp. 1–5. Doi: 10.1016/J.Jefas.2015.01.002.
- Nikolaos, A. And Constantinos, K. (2013). 'A Dynamic Panel, Empirical Investigation On The Link Between Inflation And Fiscal Imbalances. Does Heterogeneity Matter?', Prague Economic Papers, 2, Pp. 147–162.
- Parkin, M. (2014). Economics. 11 Ed. England: Person Education Ltd.
- Raji, J. O., Juzhar, J. And Jantan, M. D. (2014). 'Real Money Supply, Price And Fiscal Deficit In Nigeria: Evidence From Multivariate Granger Causality Tests', Journal Of Economic Cooperation And Development, 4(4), Pp. 85–112.
- Sriyana, J. (2018). Inflationary effects of fiscal and monetary policies in Indonesia. Business and Economic Horizons, 14(3), 674-688. http://dx.doi.org/10.15208/beh.2018.47
- Sriyana, J. (2019). Price stabilization policy in an emerging economy: An asymmetric approach. Journal of International Studies, 12(2), 165-181. doi:10.14254/2071-8330.2019/12-2/10
- Thanh, S. D. (2015). 'Threshold Effects Of Inflation On Growth In The Asean-5 Countries: A Panel Smooth Transition Regression Approach.', Journal Of Economics Finance And Administrative Science, 20(38), Pp. 41–48. Doi: 10.1016/J.Jefas.2015.01.003.
- Tirtosuharto, D. And Adiwilaga, H. (2013) 'Decentralization And Regional Inflation In Indonesia', Bulletin Of Monetary, Economics And Banking, 16(2), Pp. 149–166.
- Yağcibaşi, Ö. F. And Yildirim, M. O. (2017). 'Welfare Implications Of Alternative Monetary Policy Rules : A New Keynesian Dsge Model For Turkey', Review Of Economic Perspectives, 17(4), Pp. 363–379. Doi: 10.1515/Revecp-2017-0019.
References
Ajaz, T., Nain, M. Z. And Kamaiah, B. (2016) 'Inflation And Openness In India: An Asymmetric Approach', Macroeconomics And Finance In Emerging Market Economies, 9(2), Pp. 190–203. Doi: 10.1080/17520843.2016.1162825.
Auerbach, A. J., Gale, W. G. And Harris, B. H. (2010) 'Activist Fiscal Policy', Journal Of Economic Perspectives, 24(4), Pp. 141–164.
Berument, H. And Doan, B. (2003) 'Openness And The Effectiveness Of Monetary Policy: Empirical Evidence From Turkey', Applied Economics Letters, 10(4), Pp. 217–221. Doi: 10.1080/1350485022000015842.
Bhattacharya, R. (2014) 'Inflation Dynamics And Monetary Policy Transmission In Vietnam And Emerging Asia', Journal Of Asian Economics, 34, Pp. 16–26.
Bozkurt, C. (2014) 'Money, Inflation And Growth Relationship: The Turkish Case', International Journal Of Economics And Financial Issues, 4(2), Pp. 309–322.
Bukhari, Z. And Yusof, Z. (2014) 'Macroeconomic Effects Of Fiscal Policy In Malaysia : Real Or Inflationary ?', In Proc. Of The Second Intl. Conf. On Advances In Social Science, Management And Human Behaviour. Zurich, Switzerland: Institute Of Research Engineers And Doctors, Usa, Pp. 204–207.
Burstein, A. T. (2006) 'Inflation And Output Dynamics With State-Dependent Pricing Decisions', Journal Of Monetary Economics, 53(7), Pp. 1235–1257. Doi: 10.1016/J.Jmoneco.2005.05.006.
Deev, O. And Hodula, M. (2016) 'The Long - Run Superneutrality Of Money Revised : The Extended European Evidence', Review Of Economic Perspectives, 16(3), Pp. 187–203. Doi: 10.1515/Revecp-2016-0012.
Dicky, D. . And Fuller, W. A. (1981) 'The Likelihood Ratio Statistics For Autoregressive Time Series With A Unit Root', Econometrica, 49(4), Pp. 1057–1072.
Domowitz, I. And Elbadawi, I. (1987) 'An Error Correction Approach To Money Demand: A Case Of Sudan', Journal Of Development Economics, 26(2), P. 257–375. Doi: Doi.Org/10.1016/0304-3878(87)90029-0.
Duncan, R. And Martínez-García, E. (2015) Forecasting Local Inflation With Global Inflation : When Economic Theory Meets The Facts. Working Paper No. 235. Federal Reserve Bank Of Dallas, Dallas.
Enders, W. (2010) Applied Econometric Time Series. 3rd Ed. New York: John Wiley & Sons.
Engle, R. F. And Granger, C. W. J. (1987) 'Co-Integration And Error Correction: Representation, Estimation, And Testing', Econometrica, 55(2), Pp. 251–76.
Fakher, H. (2016) 'The Empirical Relationship Between Fiscal Deficits And Inflation (Case Study: Selected Asian Economies)', Iranian Economic Review, 20(4), Pp. 551–579.
Falahi, M. And Hajamini, M. (2017) 'Asymmetric Behavior Of Inflation In Iran: New Evidence On Inflation Persistence Using A Smooth Transition Model', Iranian Economic Review, 21(1), Pp. 101–120.
Feridun, M. And Adebiyi, M. A. (2005) 'Forecasting Inflation In Developing Economies: The Case Of Nigeria', International Journal Of Applied Econometrics And Quantitative Studies, 2(4), Pp. 103–132.
Gali, J. (2010) 'Inflation Pressures And Monetary Policy In A Global Economy', International Journal Of Central Banking, 6(1), Pp. 93–102.
Ghosh, A. (2014) 'How Do Openness And Exchange-Rate Regimes Affect Inflation?', International Review Of Economics & Finance, 34, Pp. 190–202.
Gupta, R. And Uwilingiye, J. (2008) Time Aggregation, Long-Run Money Demand And The Welfare Cost Of Inflation. 2008–25. Pretoria, South Africa.
Hamilton, J. D. (2012) 'Import Prices And Inflation', International Journal Of Central Banking, 8(1), Pp. 271–280.
Heidari, H. And Bashiri, S. (2010) 'Inflation And Inflation Uncertainty In Iran: An Application Of Garch-In-Mean Model With Fiml Method Of Estimation', International Journal Of Business And Development Studies, 2(1), Pp. 131–146.
Hossain, A. (2005) 'The Sources And Dynamics Of Inflation In Indonesia: An Ecm Model Estimation For 1952-2002', Applied Econometrics And International Development, 5(4), Pp. 93–116.
Hossain, A. A. (2010) 'Monetary Targeting For Price Stability In Bangladesh: How Stable Is Its Money Demand Function And The Linkage Between Money Supply Growth And Inflation', Journal Of Asian Economics, 21(6), Pp. 564–578.
Johansen, S. (1991) 'Estimation And Hypothesis Testing Of Cointegration Vectors In Gaussian Vector Autoregressive Models', Econometrica, 59(6), Pp. 1551–1580.
Kandil, M. (2005) 'Money, Interest, And Prices: Some International Evidence', International Review Of Economics And Finance, 14(2), Pp. 129–147. Doi: 10.1016/J.Iref.2003.11.013.
Khundrakpam, J. K. (2010) 'Fiscal Stimulus And Potential Inflationary Risks : An Empirical Assessment Of Fiscal Deficit And Inflation Relationship In India', Journal Of Economic Integration, 25(4), Pp. 703–721.
Lin, H. Y. And Chu, H. P. (2013) 'Are Fiscal Deficits Inflationary', Journal Of International Money And Finance, 32, Pp. 214–233. Doi: Dx.Doi.Org/10.1016/J.Jimonfin.2012.04.006.
Mackinnon, J. G., Haug, A. And Michelis, L. (1999) 'Numerical Distribution Functions Of Likelihood Ratio Tests For Cointegration', Journal Of Applied Econometrics, 14(5), Pp. 563–577.
Mohanty, D. And John, J. (2015) 'Determinants Of Inflation In India', Journal Of Asian Economics, 36, Pp. 86–96. Doi: 10.1016/J.Asieco.2014.08.002.
Naz, F., Mohsin, A. And Zaman, K. (2012) 'Exchange Rate Pass-Through In To Inflation: New Insights In To The Cointegration Relationship From Pakistan', Economic Modelling, 29(6), Pp. 2205–2221.
Nguyen, V. B. (2015) 'Effects Of Fiscal Deficit And Money M2 Supply On Inflation: Evidence From Selected Economies Of Asia', Journal Of Economics, Finance And Administrative Science. Aedv, 20(38), Pp. 1–5. Doi: 10.1016/J.Jefas.2015.01.002.
Nikolaos, A. And Constantinos, K. (2013). 'A Dynamic Panel, Empirical Investigation On The Link Between Inflation And Fiscal Imbalances. Does Heterogeneity Matter?', Prague Economic Papers, 2, Pp. 147–162.
Parkin, M. (2014). Economics. 11 Ed. England: Person Education Ltd.
Raji, J. O., Juzhar, J. And Jantan, M. D. (2014). 'Real Money Supply, Price And Fiscal Deficit In Nigeria: Evidence From Multivariate Granger Causality Tests', Journal Of Economic Cooperation And Development, 4(4), Pp. 85–112.
Sriyana, J. (2018). Inflationary effects of fiscal and monetary policies in Indonesia. Business and Economic Horizons, 14(3), 674-688. http://dx.doi.org/10.15208/beh.2018.47
Sriyana, J. (2019). Price stabilization policy in an emerging economy: An asymmetric approach. Journal of International Studies, 12(2), 165-181. doi:10.14254/2071-8330.2019/12-2/10
Thanh, S. D. (2015). 'Threshold Effects Of Inflation On Growth In The Asean-5 Countries: A Panel Smooth Transition Regression Approach.', Journal Of Economics Finance And Administrative Science, 20(38), Pp. 41–48. Doi: 10.1016/J.Jefas.2015.01.003.
Tirtosuharto, D. And Adiwilaga, H. (2013) 'Decentralization And Regional Inflation In Indonesia', Bulletin Of Monetary, Economics And Banking, 16(2), Pp. 149–166.
Yağcibaşi, Ö. F. And Yildirim, M. O. (2017). 'Welfare Implications Of Alternative Monetary Policy Rules : A New Keynesian Dsge Model For Turkey', Review Of Economic Perspectives, 17(4), Pp. 363–379. Doi: 10.1515/Revecp-2017-0019.