The Influence of Long-term and Short-term Variables on the Oil Prices, Money Supply, Policy Rates, Output Gaps, Rupiah Exchange Rate and Gross Fixed Capital Formation on Inflation in Indonesia

Abstract

This study examines the influence of long-term and short-term variables on oil prices, money supply, policy rates, gross fixed capital formation (PMTB), rupiah exchange rate against the dollar, and output gaps on inflation in Indonesia. Indonesia is one of the countries with the highest population in the world as well as one of the countries with the most significant oil wealth in the world. However, Indonesia is still classified as a developing country. One of the indicators in a country’s economy is the inflation rate. This study used secondary data from 2006:Q1-2018:Q4 with the Error Correction Model (ECM) analysis method. The result of this study is that the variable oil prices and money supply in the short and long term have a positive and significant effect on Indonesia’s inflation. In the short and long term, variable policy rates negatively and significantly impact Indonesia’s inflation. Gross fixed capital formation and the output gap in the long and short term have an insignificant positive impact on Indonesia’s inflation.