Asymmetric Effects of World Energy Prices on Inflation in Indonesia

Arintoko Arintoko, Lilis Siti Badriah, Dijan Rahajuni, Nunik Kadarwati, Rakhmat Priyono and Muhammad Amin Hasan
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Arintoko Arintoko: Department of Economics and Development Studies, Faculty of Economics and Business, Universitas Jenderal Soedirman, Purwokerto, Indonesia,
Lilis Siti Badriah: Department of Economics and Development Studies, Faculty of Economics and Business, Universitas Jenderal Soedirman, Purwokerto, Indonesia,
Dijan Rahajuni: Department of Economics and Development Studies, Faculty of Economics and Business, Universitas Jenderal Soedirman, Purwokerto, Indonesia,
Nunik Kadarwati: Department of Economics and Development Studies, Faculty of Economics and Business, Universitas Jenderal Soedirman, Purwokerto, Indonesia,
Rakhmat Priyono: Department of Economics and Development Studies, Faculty of Economics and Business, Universitas Jenderal Soedirman, Purwokerto, Indonesia,
Muhammad Amin Hasan: KIET University, Pakistan.

International Journal of Energy Economics and Policy, 2023, vol. 13, issue 6, 185-193

Abstract: This study analyzes the asymmetric effect of changes in world energy prices, which include crude oil, natural gas, and coal prices, and the exchange rate on consumer price index (CPI) inflation in Indonesia. The models used in the analysis are quantile regression and dynamic ordinary least squares. The period studied is monthly in the period 2001M01 - 2022M12. The study results show that world crude oil prices have asymmetrically positive effects on CPI inflation when world oil prices increase and decrease. The fall in the price of crude oil has a more significant effect than the increase. The asymmetric impact of world crude oil prices on CPI inflation was also found between lower and middle quantiles. However, the short-run impact of rising crude oil prices is only found in the 7th quartile. So, the long-run effect is more dominant than the short-run effect. The role of the fuel subsidy policy, which the government manages, is beneficial in reducing inflationary fluctuations originating from fluctuations in world crude oil prices. Efforts to develop oil refineries in Indonesia that need to be done to reduce imports of crude oil and fuel are expected to be able to reduce the impact of world oil price fluctuations on domestic inflation in the future.

Keywords: asymmetric effect; CPI inflation; quantile regression; world crude oil prices; fuel subsidy policy (search for similar items in EconPapers)
JEL-codes: C21 E31 Q41 (search for similar items in EconPapers)
Date: 2023
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Citations: View citations in EconPapers (1)

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