Inflation is a crucial macroeconomic indicator that affects various economic variables and requires effective policy responses. In Indonesia, Bank Indonesia plays a central role in maintaining price stability through monetary policy. This study examines the short- and long-term impacts of several macroeconomic variables on inflation using quarterly data from 2009 to 2023, employing the Vector Autoregression (VAR) and Vector Error Correction Model (VECM) approach-es. The results show that in the short term, money supply (M1) negatively affects inflation, while interest rates have a positive effect. Other variables, such as exchange rate, GDP, exports, and imports, also exhibit negative effects in the short term. In the long run, M1, GDP, exports, and imports significantly affect inflation, with exchange rate, interest rates, and imports showing a positive relationship. Granger causality indicates a bidirectional relationship between GDP and M1. These findings suggest the importance of controlling money supply, promoting exports, managing imports, and stabilizing the exchange rate. Overall, Indonesia’s inflation control policies appear relatively effective, with the diminishing impact of inflation shocks over time. Further research is encouraged to deepen the understanding of causal relationships among these variables.
Yusuf et al. (Sun,) studied this question.
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