The sources and dynamics of inflation in Indonesia: An ECM model estimation for 1952-2002

• Akhtar Hossain ^[1]
  1. [1] University of Newcastle
• Localización: Applied econometrics and international development, ISSN 1578-4487, Vol. 5, Nº. 4, 2005, págs. 93-116
• Idioma: inglés
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• Resumen

  • This paper uses annual data for the period 1952-2002 to investigate the inflationary process in Indonesia within the cointegration-and error-correction modeling framework. The empirical results suggest that the consumer price index (CPI), the stock of narrow (M1) or broad money (M2) and real permanent income form a (weakly) cointegral relationship for the complete sample period. This relationship remains broadly stable for several sub-samples, especially when the model is estimated with a narrow definition of money. The dynamic relationship between money, output, prices, and the exchange rate is investigated within a general-to-specific error-correction modeling framework. The presence of a significant error-correction term implies that given economic growth, there existed a long-run causal relationship between money supply growth and inflation.