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

HERU WAHYUDI

Faculty of Economics and Business,

University of Lampung,

Jln. H. Komarudin, Rajabasa Raya, Rajabasa, Bandar Lampung,

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.

Key-Words: - Oil Price, Inflation, Money Supply, Investment, Exchange Rate, Output Gap.

Received: May 9, 2023. Revised: February 24, 2024. Accepted: March 16, 2024. Published: April 12, 2024.

1 Introduction

Based on Law No. 3 of 2004 concerning, [1],

Bank Indonesia has the sole objective of

achieving and maintaining rupiah stability.

Where the strength of the rupiah contains one

of the crucial aspects of the final target of

monetary policy in Indonesia, namely price

stability. Price stability is reflected in

developing a low and stable inflation rate, [2].

Low and stable inflation is a prerequisite for

sustainable economic growth to improve many

people’s welfare.

Inflation increases the price of goods and

services in a manner that is familiar and

happening. Keep going continuously, [3].

Inflation or stability price is a barometer of

growth economy representative actual

condition economy of a country. So low and

stable inflation becomes a precondition

essential in a growth economy Because it will

have a continuous impact favorable to a

government case, increases Power by the

community, passion public For saving and

investing, and national income, which in the

end improves the well-being public a country.

Whereas high inflation or instability

become significant problems in the economy,

move st avoided. This is because mark

something currency will experience a drop and

power buy the currency become that weak

direct impact on individuals, the business

world budget income, and spending

government. The inflation rate more

domestically compared with the level of

inflation in other countries will also make the

level flower domestic real become No

competitive, which can put pressure on the

value of the rupiah so that the rupiah will

depreciate to foreign currency, mainly the

dollar, the as the main currency in trading

international, [4].

Kindly general level of inflation in

developed countries is more stable and

controlled compared to relatively developing

countries, which are more highly and fluctuate.

One developing country with residents of

Islam, Indonesia is the largest in the world.

After implementing an inflation targeting

framework in Indonesia, which is determined

by Bank Indonesia as a policy stance monetary

in guard movement inflation still on track

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achievement target inflation that has set,

Indoneia's inflation has become stable

Following is the progress of Indonesian

inflation.

Indonesian inflation, since In 2006-2018

Indonesia experienced inflation various

fluctuations. Indonesia's inflation in 2008, ie

reached 9.4 percent caused by the global crisis

that hit the world so impact badly in

Indonesian. Development inflation in

Indonesia identified that there is various

causative factor inflation in Indonesia. Islam

No known for Inflation, because the currency

used is dinars and dirhams that have stable

value and justified by Islam as well as

according to economists Islam Inflation causes

the economy a country to be bad, [5].

Economists believe that stability price or

inflation always and wherever it is a

phenomenon monetary. he added that the

amount of money in circulation is a

phenomenon monetary found as reason for

inflation. Economists consider that the source

of all inflation episodes is high money supply

growth. Monetaryists state that t a positive

relationship between rate inflation and money

supply growth, [6]. Whereas a study from, [7],

find that the rate money supply growth

negatively affects Indonesia as authority

monetary authorized to determine policy

Indonesian Monetary in an effort to keep and

achieve stable prices. In case of this, since July

2005 Bank Indonesia has implemented

inflation targeting framework policies with

ethnic group flower policy as a target of its

operational. If pressure inflation experience

increases, Bank Indonesia responded with an

increase level ethnic group flower policy For

push inflation still low and stable. When the

economy currently experiences sluggishness,

Bank Indonesia will do policy expansionary

with lower level ethnic group flower policy.

Decline ethnic group flower reference lower

savings community, improve investment and

consumption.

Connection This shows that the level of

ethnic group flower is one factor important in

affecting rate inflation. The essence, level

ethnic group flower is the price that connects

the present and the future, [8]. Based on theory

quantity and Fisher's equation shows that level

inflation changed because the flower changed.

Research, [7], states that ethnic groups flower

own influence negative to inflation. Whereas a

study from [9], found that ethnic group flower

influential positive to inflation.

Instability inflation is influential big to the

well-being society. High inflation can cause

poverty Because opinion real public decreases.

According to Nurske poverty in developing

countries can cut through caused capital

formation lack of capital goods and can be

overcome through capital formation. Capital

formation is issued capital formation For

owned capital goods age usage of more from

One year, that covers buildings, machines,

facilities transport and factory, and equipment

with all types forms of real capital that can be

with fast increase benefit effort productive.

Capital formation leads to the utilization full

existing sources so that can increase national

output, however addition Continued capital

formation continuously influential to

enhancement inflation. Based on [10], states in

his research that capital formation positively

influences inflation. this shows that movement

influences capital formation level inflation in

Indonesia.

Development rate neither does Indonesia's

inflation regardless of fluctuation mark swaps

specifically mark exchange rupiah against the

USD dollar as the main currency in trading

internationally. Based on [11], explained on

the transmission direct mark experienced

exchange depreciation will make goods import

to be expensive and on its continuation will

increase domestic inflation. In the theory of

Purchasing Power Parity when happen

enhancement inflation so For maintaining

equilibrium law of one price exchange rate

should go up (value swap depreciated).

Fluctuation mark swaps or exchange rates have

an influence positive to inflation. this is proven

by research from [12], [13] find that the impact

of exchange rate on inflation is positive.

However, research conducted by [14], finds

that the exchange rate negatively impacts

inflation.

The movement price world oil also has the

potential in affect inflation in Indonesia.

Considering that Indonesia is exporting oil raw

at a time of importing oil so. Since 2002

changes price oil raw the world becomes a

system determination the price material burn

For industry. The scarcity cooking oil caused

spike price of cooking oil in Indonesia, p This

happens policy government yet fully by values

economy Islam, [15].

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According to [16], the price of oil more

will quickly followed by an increase price of

products oil, like gasoline and materials fuel

used by manufacturers. Ascension price oil

responded by the producers with enhancement

cost production in form price more consumers

tall For goods and services, meanwhile worker

will respond enhancement cost life with

demand more wages tall, [17]. So if this

happen fluctuating to price oil will affect level

inflation.

Corner view knowledge economy

classifies two causes happening inflation in a

economy namely: inflation caused by changes

in aggregate or called demand pull inflation

and the resulting inflation change in offer

aggregate cost push inflation. ,inflation is

caused by the existence gap between excess

request aggregate in an economy that doesn't

capable matched by offers aggregates inside

economy. Gaps This is called the output gap.

The output gap is the difference between actual

outputs and potential output.

Actual output is the actual output value of

the economy. In contrast, the potential output

is the optimum economic output value that can

be considered permanent and sustainable in a

period medium without existing shock and

pressure inflation. Actual output is the request

aggregate while the potential output is as offer

aggregate. Positive output gaps are marked

with excess demand so that level prices tend to

experience significant increases or rate relative

inflation tall [18]. In [19], states that positive

output gap positively influences Indonesian

inflation.

The application of ITF by Bank Indonesia

was carried out To orientate target end policy

monetary from target double become target

single which is stability inflation. Stable

inflation is depicted as moving inflation

relatively stable Good increase or decrease,

and when experiencing change so No too

fluctuate so that No cause shock or big shock

for the economy a country. All perpetrator

economy including the public broad expects

stability Inflation. According to [3], turmoil

excessive inflation No in accordabyterest

period long because instability inflation can

distort the level Power competitive economy,

reduce efficiency allocation source power, and

boost uncertainty for the perpetrator economy.

The magnitude of inflation in the economy

makes inflation need controlled to stay awake

and stable. Analysis of variables reason

inflation is very important For done Because

various policy monetary taken based on mark

inflation. In research, This variable is money

supply, tribe flower policies, PMTB, values

exchange rupiah against USD, price oil, and

output gaps. It not only influences inflation

from the side request aggregate but influences

inflation from the side offer aggregate anyway.

The variable that becomes a factor from side

request aggregate repres is represented by the

money supply, rate flower policies, and

PMTB, factor from side offer aggregate is

influenced by the value exchange rate and oil

precedes that the output gap becomes a

variable important in respond to inflation.

because that, you formulate policy proper

monetary For control inflation, important To

know How suspected variables influence

inflation in period short nor period length and

how the stability inflation in Indonesia.

2 Literature Review

Stability price is the central bank goal in guard level

price general still low and stable from time to time,

that is guard level inflation. Inflation is a trend that

increases the prices of goods and services in a

manner that generally keeps going continuously in a

certain period. Two elements are important in

understanding inflation: the first is the goods and

services area and the second is Keep going

continuously. Only hike prices in a manner common

and sustainable called inflation, [3].

Theory about inflation first developed from the

known theory of quantity (about money). Quantity

theory is something about a causative factor

changing level price when an increase the amount of

money in circulation is factor determinant or

influencing factor increase level of price. based on

theory quantity by Irving Fisher that is MV=PT,

where the V and T factors were considered constant,

change M will influence change P. When the

amount of money in circulation is more big

compared to the amount of money requested or

needed by society, then the level price will escalate,

and so will inflation. On the other hand, if the

amount of money in circulation is smaller than the

amount of money needed by society, then the level

price will decrease, and what's called deflation, [20].

Keynesian economists say that theory quantity

is invalid because theory assumes the economy in

conditions of full employment (capacity economy

full). In condition capacity, the economy is yet full,

then expansion (increase) of the money supply

precisely will increase output (increase growth

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economy and opportunity work) and no will

increase the price. More carry on said that money is

fully neutral, increase in money supply can have

influence permanent (permanent) against variables

real such as output and rates flower.

There are two problems structural inside

developing country economies that can result in

inflation. First, acceptance of export inelastic, which

is a growth mark more slow exports than other

growth sectors. It is caused by deteriorating terms of

trade and production goods fewer exports

responsive to increase. Slowing down growth export

will ensure the ability to import needed items. Often

developing countries do policy substitution imports

although with high costs and consequences which

stuff so it raises inflation. Second, the problem

structural developing country's economy is the

production of material food in a country that isn't

inelastic, that is growth production of food

domestically does not as fast increase population

and per capita income so the price of food

domestically tends to to increase more-tall than

increase price goods other. this push emergence

demands increased wages from the worker sector

next industry will increase cost production and in

turn will raise inflation, [20].

3 Methodology

Research type This descriptive and quantitative

study uses various theories and related data to

study this. Data used is secondary data and the

type of time series data (sequential time) starts

from the period 2006:Q1-2018:Q4 with

variables used in the study This is stability

Indonesian prices/inflation as variable bound,

money supply, interest rate flower policy (BI

Rate and BI 7-days reserve repo rate), PMTB,

value exchange (exchange rate) rupiah against

dollar USD, price oil, and the output gap as

variable free. Following is an explanation

variable to be the center analysis to use give

direction research (Table 1, Appendix).

The researcher's data analysis method is

quantitative with the Error Correction Model

(ECM). ECM is a plugging model adjustment

for do correct for imbalance. The use of the

ECM model occurs in time series data that is

not stationary. No data stationary will cause

results regression doubt or spurious regression,

[21]. By research, this so obtained model

equation is as follows:

D(INFt)=β0 + β1D(JUBt)-β2D(SKt) + β3D(PMTBt) +

β4D(KURSt) +β5D(HMt) + β6D(OG t)

+ECT

(1)

Description:

INF = Inflation/ stability price

β0 = Intercept

β1,...,6 = Coefficient from variable

independent

JUB = Amount of money in circulation

SBK = Interest rate policy

PMTB = Gross Fixed Capital Formation

EXCHANGE = Rupiah exchange rate against

USD

HM = Oil Price

OG = Output gaps

ECT = Error Correction Term

The first condition is data stationarity. One

important draft for time series data is

stationary data conditions or no stationary.

Data said stationary when the data is close to

the average and not affected by time. With

stationary data, time series models can said

more stable. If an estimate is done with using

data that is not stationary then the data

considered returns its validity and stability,

because results originating regression from

data that is not stationary will cause spurious

regression. Spurious regression understands

that results regression from One time series

variable at one or several time series variables

tend to produce conclusion results biased

estimate. Procedure To determine is the data

stationary or Not with method compare mark

ADF test statistics with mark critical

distribution MacKinnon statistics, where the

statistical t value indicates ADF test statistics.

Hypothesis: H0: αi = 0 for all i (there is a

unit root, no stationary)

Ha : αi ≠0 (no there is a unit root, stationer)

If the value absolute more ADF test

statistics big from mark critical distribution

MacKinnon statistics then H0 is rejected, in the

sense that the observed time series data is

stationary. And vice versa, if the mark absolute

more ADF test statistics small from mark

critical distribution MacKinnon statistic, then

H0 is accepted, which means the time series

data is not stationary. Suppose ADF test results

show that the observed time series data are not

stationary in form levels. In that case,

transformation is needed through the

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differencing process so that the data becomes

stationary. data in the difference form is data

that has been lowered with the period before,

where form degrees first (first difference) can

notated with I(1) then the ADF test procedure

is again done when the time series data is

observed still not yet stationary in degrees first

so return second difference for get stationary

data.

Furthermore is the cointegration test. The

cointegration test is no test no connection

period long between variable free and variable

bound. Main purpose of cointegration test is

To know is the residual cointegrated stationary

or not. If the variable is cointegrated so there is

a stable relationship over a period long. On the

contrary, If No there is cointegration between

variables so implication is that no linkages

connection in period long. In research, this is a

cointegration test using the Engle-Granger

cointegration test. To perform a cointegration

test with EG, we must do a regression equation

and then get the residual, then, we test this

residual using DF and ADF. The results

estimate mark statistics DF and ADF later

compared to mark critical.

Hypothesis: H0 = no there is

cointegration and Ha = exists cointegration. If

the value is absolute more ADF test statistics

big from mark critical distribution MacKinnon

statistics then H0 rejected, in the sense of the

variables observed each other cointegrated.

And vice versa, if the mark absolute more

ADF test statistics is small from mark required

distribution MacKinnon statistic, then H0

accepted, which means variables observed no

cointegrated.

If the data is not stationary at the level

level, but stationary on the level difference and

the second variable cointegrated or has

connection or balance period long. in term

short Possible There is imbalance. That is, that

what the offender wants economy is Not yet Of

course The same with what happened actually.

There is a difference between what is wanted

perpetrator economics and what happened so

needed exists adjustment. Insert models

adjustment For do correct for imbalance called

the Error Correction Model (ECM), [21].

4 Result and Discussion

4.1 Research Results

One assumption in the required time series

data test fulfilled with the use of ECM model

analysis is a test of data stationarity. Deep data

stationarity test study Uses unit test root test

with use Augmented Dickey-Fuller Test

method (ADF test).

Table 2 (Appendix) shows the unit root

test using the ADF at level level. By

comparing the mark from t- t-count with

critical value for each variable. Unit root test

results with compare marks from t- count with

critical value for each namely 1 percent, 5

percent, and 10 percent can conclude that

variable This ethnic group flower policy

(SBK), value exchange (EXCHANGE) and

prices oil (HM) is stationary at the level level

while v. In contrast,e inflation (INF), the

money supply (JUB), and PMTB are not

stationary at this level. So th go back to the

unit root test on the first difference in each

variable and the results can be seen in Table 3

(Appendix).

Table 3 (Appendix) shows the results unit

root estimate at the level of the first difference

for all variables. Already stationary at order

one or can abbreviated becomes I(1) so that the

data is free from impudent problem regression

(spurious regression). Because that condition is

already fulfilled, the stage furthermore can do

more data processing.

In research this is a cointegration test done

with the cointegration test EngelGranger, that

is see the residuals of the equation stationary or

not. The results of the Engel-Granger

cointegration test are shown in Table 4

(Appendix).

Table 4 (Appendix) shows that variable

residual yield inflation, money supply, interest

rates flower policies, PMTB, values exchange,

price oil, and the output gap are stationary at

the level level. this is proven with the- value

ADF statistic is bigger from critical value.

Thus there is cointegration between variable

free and variable bound.

ECM testing is performed For now exists

possibility imbalance in period short. ECM test

insert adjustment (ECt) to correct imbalance.

The estimation results period short shown in

Table 5 (Appendix).

From estimation estimated ECM above got

equality as follows:

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D(INFt)

=

-0.042334 + 0.047D(JUBt) –

0.642D(SBKt) + 0.005D(PMTBt) +

0.033460D(EXCHANGEt) +

0.00025D(HMt) + 0.005D(OGt) -

0.223ECt

(2)

Coefficient ECt (-1) is the Error Correction

Term (ECt) which indicates speed adjustment

(speed of adjustment) ie residual/error speed

on term short For corrected change variable Y

headed balance on term long. A negative sign

(-) on the coefficient ECt indicates valid or

valid model specifications. The ECM

estimation results show mark coefficient ECt

worth negative and significant at 95%

significance. That is, terms For ECM

estimation are fulfilled and the ECM model is

declared valid. Coefficient value ECt (-1) of

0.22 or 22 percent, p This shows speed

residual/error adjustments on term short For

corrected change variable inflation going to

balance on term long by 22 percent.

Based on the results estimate got a mark

coefficient R2 determination of 0.570367

which shows that the variables JUB, SBK,

PMTB, KURS, HM, and OG explain and

influence the INF variable is 57 percent and

the remaining 43 percent influenced by other

variables that are not entered in models.

The coefficient variable JUB value is

positive of 0.047257 and has a probability of

0.0185 smaller than level significance by 0.05,

that is the JUB variable has an effect positive

and significant to Indonesian inflation and

predictability of every increase in growth the

amount of money in circulation by 1 percent so

will increase inflation of 0.047257 percent.

The coefficient SBK variable has a value

negative of 0.642743 and has a probability of

0.0001 smaller than level significance by 0.05,

that is SBK variables have an effect negative

and significant to Indonesian inflation and

predictability of every increase in ethnic group

flower policy by 1 percent so will lower

inflation of 0.642743 percent.

The coefficient value PMTB variable is

positive of 0.005669 and has a probability of

0.7919 bigger than level significance by 0.05,

that is PMTB variables have a effect positive

but No significance to Indonesian inflation.

Coefficient EXCHANGE variable value is

positive of 0.033460 and has a probability of

0.0283 smaller than the level significance by

0.05, that is EXCHANGE variables have an

effect positive and significant to Indonesian

inflation and predictability every increase

growth mark swap by 1 percent so will

increase inflation of 0.033460 percent.

The coefficient HM variable is worth a

positive of 0.033460 and has a probability of

0.0473 smaller than level significance by 0.05,

which is influential HM variable positive and

significant to Indonesian inflation and

predictability every increase in growth price oil

by 1 percent so will increase inflation of

0.033460 percent. Coefficient the OG variable

is worth a positive of 0.005116 and has a

probability of 0.9014 bigger than level

significance by 0.05, that is the OG variable

has a effect positive but No significance to

Indonesian inflation.

After knowing how the influence variable

is free to variable bound in a period short, then

see How the influence variable is free to

variable bound in a period long. The estimation

results period long shown in Table 6

(Appendix). From estimation estimated ECM

above got equality as follows:

D(INFt)

=

-0.047+0.051D(JUBt)-0.622D(SBKt)

+0.007D(PMTBt)+0.031D(EXCHAN

GEt)+0.0002D(HMt)+0.0081D(OGt)

(3)

Based on the results estimate period long

got a mark coefficient R2 determination as big

0.405202 which show that the variables JUB,

SBK, PMTB, KURS, HM, and OG explain and

influence the INF variable is 40 percent and

the remaining 60 percent influenced by other

variables that are not entered in models.

The coefficient variable JUB value is

positive of 0.051766 and has a probability of

0.0081 smaller than the level significance by

0.05, that is the JUB variable has an effect

positive and significant to Indonesian inflation

and predictability of every increase in growth

the amount of money in circulation by 1

percent so will increase inflation of 0.051766

percent.

The coefficient SBK variable has a value

negative of 0.622986 and has a probability of

0.0002 smaller than the level significance by

0.05, that is SBK variables have an effect

negative and significant to Indonesian inflation

and predictability of every increase in ethnic

group flower policy circulating by 1 percent so

will lower inflation of 0.6229863 percent.

The coefficient value PMTB variable is

positive at 0.007141 and has a probability of

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0.7510 bigger than the level significance by

0.05, that is PMTB variables have an effect

positive but No significance to Indonesian

inflation. The coefficient EXCHANGE

variable value is positive of 0.031515 and has

a probability of 0.0470 smaller than the level

significance by 0.05, that is EXCHANGE

variables have an effect positive and

significant to Indonesian inflation and

predictability every increase growth mark

swap by 1 percent so will increase The

inflation of 0.031515 percent.

The coefficient HM variable is worth a

positive of 0.000225 and has a probability of

0.0349 smaller than the level significance by

0.05, which is an influential HM variable

positive and significant to Indonesian inflation

and predictability of every increase in growth

price of oil by 1 percent so will increase

inflation by 0.000225 percent. Coefficient the

OG variable is worth a positive of 0.008171

and has a probability of 0.8502 bigger than the

level significance by 0.05, that is the OG

variable has a effect positive but No

significance to Indonesian inflation.

4.2 Discussion

Influence Growth Amount of Money in

Circulation against Indonesian Inflation

The ECM estimation results show that variable

growth of the amount of money in circulation

in plural short term are long influential

positive and significant to inflation in

Indonesia. Research results support the

proposed hypothesis. This is supported by

research conducted by [22], which states that

the amount of money in circulation has a

positive relationship with the level of inflation

in Indonesia. Similar results were also shown

in research by [23], that the money supply in

Indonesia has a positive relationship to the

level of inflation in Indonesia.

In theory quantity of money, a determinant

important in level inflation is growth in the

amount of money in circulation. When the

money supply significantly increases, the

amount of money held by the public increases

causing behavior public to tend To buy more

goods and services. Behavior This increase in

requests will goods and services in a manner

aggregate compared to with offer aggregate.

goods become reduced because utilization

resources have reached the maximum or

Because production No can Again be improved

as soon as possible. For offset increasing

demand increased later effect on level inclined

prices increase. Because of inflation shown on

change changes in prices and services are

increasing, then can concluded that growth in

the money supply increases will cause

inflation.

Effect of Policy Interest Rates against

Indonesian Inflation

In terms short nor period long, the tribe's

flower policy has influence negative and

significant. Research results supported by

research from [19], stated that ethnic groups

flower influential negatively and significant to

Indonesian inflation. In theory keynes ethnic

group flower is price from holding money.

That means for the level ethnic group low

interested public will more Like holding

money, then the bigger the amount of money

requested public, later consumption and

investment will cause an increase in price.

Change ethnic group flower policy in

affect inflation through track ethnic group

flower affect ethnic group flower deposits and

interest flower credit banking. If the economy

currently experiences sluggishness, Bank

Indonesia uses policy expansionary monetary

through decline of ethnic groups flower For

push activity economy. Decline ethnic group

flower policy and lower ethnic group flower

credit so that requests will be credited from the

company and the home ladder will increase.

Decline ethnic group flower credit will lower

company capital cost for investment. This will

increase activity encouraging consumption and

investment enhancement prices and cause

inflation.

Influence Gross Fixed Capital Investment

Growth on Indonesian Inflation

Estimation results show that gross fixed capital

investment growth during the period study was

influential and positive but insignificant in a

period short or long. This is by a study from

[10], stated that investmenthas an effect

positive but Insignificant. This is due to a

period study slowdown in growth capital

accumulation which cause slowdown

investment, [24].

Influence Exchange Rate Growth against

Indonesian Inflation

Research results show that in short and term

growth mark swaps own positive and

significant influence. This by the proposed

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hypothesis. Research results supported by [23],

stated that mark swap influences inflation

positively. Research [12], also stated that the

impact exchange rate against inflation is

positive. Development rate Indonesian

inflation is not regardless of growth mark swap

specifically mark rupiah exchange against

USD which is the main currency in trading

international.

According to [11], on transmission direct

mark experienced exchange depreciation will

make goods import expensive. prices goods

import from relative abroad become more

expensive. If many Indonesian producers use

goods imported as material default in

production, then cost production will increase.

this will responded by the manufacturer'sTo

reduce bidding which causes increased prices

consumption and cause inflation.

Influence Oil Price Growth against

Indonesian Inflation

Estimation results showing in period short and

term growth prices oil influential positively

and significantly. This by the proposed

hypothesis. Research results supported by

research from [25], stated that the price of oil

is influential positive, and significant. Since

2002 development price of oil raw become a

system determination of price material burn

For industry. Oil prices for more raw tall will

quickly followed by an increase price of

products oil, like gasoline and materials fuel

used by the manufacturer. Ascension price of

oil matters a lot to inflation in Indonesia

Because an increased price of oil will cause

cost production goes up, because in the

production process in Indonesia, materials burn

oil Still become the energy main in the

production and driving process main

transportation carrier in the distribution

process, so If happen enhancement price

producer oil will raise price For cover increase

cost production, besides that the workers also

demand more wages tall For increase cost live.

this will response by the manufacturer For

lower offer so that happen enhancement the

next price is inflation. The government must

control the market through the Hisbah

Institution because the Hisbah Institution will

detect early symptoms of market distortion

through its supervision, [15].

Influence Output Gaps against Indonesian

Inflation

In the short and long term, the output gap

variable is influential and significant to

inflation in Indonesia. this caused happened

balance between side demand and supply.

Ability side offer Still can offset increased side

demand indicated by some big industries that

can utilise source available power in a manner

max, so when happen enhancement demand by

consumers, producers can also increase the

amount of their goods and services production

For weigh request, so pressure flagged request

with excess demand can be prevented. The

ability offer aggregate in respond development

requests aggregate resulted development

output gap or output gap tends to be narrowed,

[26].

Indonesian Inflation Stability Test Results

Stabilitas test results show that Indonesian

inflation during period study generally shows

that Indonesia's inflation is stable with rule ± 1

stdev (default deviation) determined by Bank

Indonesia where is in the long term trend

length or within stable limits. Only on some

periods just Indonesia 's inflation is outside the

limitation of 1 stdev (standard deviation).

Summary results testing to Indonesia 's

inflation can seen in Table 7 (Appendix).

Stable Interpretation: (1) Stable when

inflation is within the limits of ±1.stdev and (2)

Unstable if inflation passes the lower bound (<

1.stdev) or upper bound (>1.stdev). Table 7

(Appendix) shows the position of Indonesia's

inflation based on limit ±1 stdev (default

deviation) set by Bank Indonesia. Viewed from

condition inflation that exceeds the target 's

undervalued threshold inflation happened only

in the 2010 quarter first, p This caused by

strengthening rupiah value with enough

volatility low and decline Power buy society.

Then if the condition stable occurred in 43

periods of research, starting from the quarter

fourth 2006, throughout 2007, 2009 to 2018.

Stability inflation can be directed according to

the target determined in the period medium.

Attempts to guard stability inflation done

through the application policy prudent

monetary as well as effort stabilization

inflation taken in a manner consistent For

prevent excessive volatility with an increase

the BI Rate in anticipating continuing money

supply increases, then still guard adequacy

backup foreign exchange For fulfill

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fundamental needs of the economy, as well

guard fluctuation mark rupiah exchange.

They viewed from condition inflation that

exceeds the target (overvalued). inflation

occurred in 8 periods of research, namely in

the 2006 quarter First until the quarter third,

throughout in 2008 and 2009. Instability

caused by an increase price of oil raw world

during 2005 which had an impact on the

increase Indonesian fuel prices up reach 100

percent. Then response to a decrease in the BI

rate with a decline ethnic group PUAB interest

rate flower savings and rates flower credit

increase request particular money supply

originate from increase working capital credit

and consumption. Also, the influence crisis

global finances triggered by the subsequent

subprime mortgage case impacted on the

decline mark Indonesia 's exports through

significant and ongoing hurry up and up import

consequence activity still economy tall cause

mark the rupiah exchange rate against the USD

depreciated.

5 Conclusion

The effect of positive and significant growth in the

money supply on inflation in Indonesia, so the

money supply needs to be controlled and controlled

strongly through monetary policy. In addition, the

change of the rupiah exchange rate against the USD

and the development of oil prices also affect

inflation in Indonesia positively and significantly, so

an exchange rate policy is needed to maintain

exchange rate volatility so that rupiah exchange rate

depreciation does not occur. Then the government’s

role is required to carry out control functions in the

event of changes in world crude oil prices. The

causes of inflation, both in terms of demand-pull

and cost-push inflation, affect inflation, so good

cooperation and coordination between Bank

Indonesia and the government are needed in making

policies so that a low and stable inflation target can

be achieved.

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APPENDIX

Table 1. Definitions operational Variable

Variable

Source

Measure Scale

Inflation

Bank Indonesia

Inflation is a tendency to increase prices of goods and services in

general and continuously within a certain period.

Amount of Money

in Circulation

Bank Indonesia

The money supply is the amount in circulation held by the public.

The money supply used in this study is the money supply in the

narrow sense, namely M1. M1 includes currency held by the public

and demand deposits, namely demand deposits denominated in

rupiah.

Policy Interest

Rate

Bank Indonesia

The policy interest rate is the interest rate that reflects the

monetary policy stance or stance stipulated by Bank Indonesia and

announced to the public. The interest rates used are the BI Rate

and the BI 7-day Reserve Repo

Rate.

Gross Fixed

Capital Formation

Bank Indonesia

PMTB is the formation of capital issued for capital goods with a

useful life of more than one year, including buildings, machinery,

transportation and factory facilities, and equipment with all kinds

of real capital forms that can quickly increase productive benefits.

PMTB data used in this study is gross fixed capital formation

growth data with a base year of 2010.

Exchange rate

Bank Indonesia

The exchange rate (exchange rate) is the price level agreed by

residents of the two countries to trade with each other, [8]. The

exchange rate in this study is the rupiah exchange rate against the

USD, because the dollar is the main currency in international trade,

[4].

Oil Prices

Energy Information

Administration

Oil price data in this study is crude oil price data. The price of oil

in this study is the price of West Texas Intermediate (WTI) oil.

WTI as a reference for global oil prices used by Indonesia.

Output Gaps

Bank Indonesia

Output gap is defined as the difference between actual output and

potential output. Actual output is the real economic output value,

while po. In contrast, output is the optimum economic output value

that can be considered permanent and sustainable in the medium

term without any shocks and inflationary pressures. The actual

output data is real GDP with a base year of 2010. Then the

potential output data is real GDP with a base year of 2010 whs

then calculated using the Hodrick-Prescott Filter (HPF) method.

Output gap data is obtained from reducing actual output with

potential output divided by potential output multiplied by 100

percent to equate the units of all variables.

Table 2. Test Level Level Stationary

Variable

ADF t-

statistics

Critical Values

Results

Conclusion

1%

5%

10%

INF

-2,584

-3,565

-2,919

-2,597

Accept H0

Not Stationary

JUB

-1,802

-3,565

-2,919

-2,597

Accept H0

Not Stationary

SBK

-3,733

-3,565

-2,919

-2,597

Reject H0

stationary

PMTB

-2,648

-3,565

-2,919

-2,597

Accept H0

Not Stationary

EXCHANG

E RATE

-6,231

-3,565

-2,919

-2,597

Reject H0

stationary

HM

-6,912

-3,565

-2,919

-2,597

Reject H0

stationary

OG

-3,275

-3,565

-2,919

-2,597

Accept H0

Not Stationary

Source: EViews 10

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Table 3. Stationary First Difference Test

Variable

ADF t-

statistics

Critical Values

Results

Conclusion

1%

5%

10%

INF

-4,947

-3,577

-2,925

-2,600

Reject H0

Stationary

JUB

-5,647

-3,588

-2,929

-2,603

Reject H0

Stationary

SBK

-4,083

-3,568

-2,921

-2,598

Reject H0

Stationary

PMTB

-25,294

-3,574

-2,923

-2,599

Reject H0

Stationary

EXCHANGE RATE

-5,344

-3,584

-2,928

-2,602

Reject H0

Stationary

HM

-6013

-3,581

-2,926

-2,601

Reject H0

Stationary

OG

-4,173

-3,584

-2,928

-2,602

Reject H0

Stationary

Source: EViews 10

Table 4. Cointegration Test

Variable

ADF t-

statistics

Critical Value

Results

Conclusion

1%

5%

10%

ECT

-2,890

-2,611

-1,947

-1,612

Reject H0

Cointegrated

Source: EViews 10

Table 5. Estimation Period Short-Term

Variable

Coefficient

t- Statistics

Probability

Information

C

-0.042334

-0.546462

0.5876

-

D(JUB)

0.047257

1.783667

0.0185

Significant

D(SBK)

-0.642743

-4.349858

0.0001

Significant

D(PMTB)

0.005669

0.265498

0.7919

Not Significant

D(EXCHANGE)

0.033460

2.269642

0.0283

Significant

D(HM)

0.000225

2.066461

0.0473

Significant

D(OG)

0.005116

0.041067

0.9014

Not Significant

ECT(-1)

-0.223467

-2.300127

0.0264

Significant

R-Squared

0.570367

f-Statistics

5.455463

Source: Eviews

Table 6. Estimation Test Long-Term

Variable

Coefficient

t- Statistics

Probability

Information

C

-0.047700

-0.588014

0.5595

-

D(JUB)

0.051766

1.870131

0.0081

Significant

D(SBK)

-0.622986

-4.031311

0.0002

Significant

D(PMTB)

0.007141

0.319378

0.7510

Not Significant

D(EXCHANGE)

0.031515

2.043872

0.0470

Significant

D(HM)

0.001199

3.340715

0.0349

Significant

D(OG)

0.008171

0.190024

0.8502

Not Significant

R-Squared

0.405202

f-Statistics

4.995787

Source: EViews 10

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Volume 21, 2024

Table 7. Inflation Stability Test

Variable

Undervalued Period

Stable Period

Overvalued Period

Inflation

Indonesia

2006:Q 120018Q4

2010 (Q1)

2006 (Q4)

2007 (Q 1,Q

2,Q3,Q4)

2009 (Q 2,Q

3,Q4)

2010 (Q 2,Q

3,Q4)

2011 (Q 1,Q

2,Q3,Q4)

2012 (Q 1,Q

2,Q3,Q4)

2013 (Q 1,Q

2,Q3,Q4)

2014 (Q 1,Q

2,Q3,Q4)

2015 (Q 1,Q

2,Q3,Q4)

2016 (Q 1,Q

2,Q3,Q4)

2017 (Q 1,Q

2,Q3,Q4)

2018 (Q 1,Q

2,Q3,Q4)

2006 (Q 1,Q 2,Q3)

2008 (Q 1,Q

2,Q3,Q4)

2009 (Q1)

Source: EViews 10

Contribution of Individual Authors to the

Creation of a Scientific Article (Ghostwriting

Policy)

Heru Wahyudi made a research framework and

collected literature reviews, wrote the research,

collected data, and processed research data.

Sources of Funding for Research Presented in a

Scientific Article or Scientific Article Itself

The research in this manuscript is supported by

Lembaga Penelitian dan Pengabdian kepada

Masyarakat (LPPM) Universitas Lampung.

Conflict of Interest

I have no conflicts of interest to disclose.

Creative Commons Attribution License 4.0

(Attribution 4.0 International, CC BY 4.0)

This article is published under the terms of the

Creative Commons Attribution License 4.0

https://creativecommons.org/licenses/by/4.0/deed.en

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WSEAS TRANSACTIONS on BUSINESS and ECONOMICS

DOI: 10.37394/23207.2024.21.79

Heru Wahyudi

E-ISSN: 2224-2899

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Volume 21, 2024