Unveiling Stubborn Inflation in Indonesia

Yoga Affandi

Economics and Finance in Indonesia, 2011, vol. 59, 47-70

Abstract: The average inflation rate in Indonesia is one of the highest in the region. This high level of inflation raises the question whether there is a level of stubborn inflation in shaping the inflation process. It also indicates the presence of more fundamental problems, that might be related to the supply side of the economy. This paper investigates the inflation using both the cost push as well as demand pull approaches. We find evidence that four inputs: wages, transport costs, food and import prices play a significant role in determining long run inflation. We show that the price level is linearly homogeneous in all input costs. These inputs have contributed to the dynamic short run inflation. The demand side is also important. Base money keeps its key role in influencing the core inflation. A long run price homogeneity is found between nominal money and prices.Journal: Economics and Finance in Indonesia

Keywords: Central Banking; Monetary Polic, Indonesia (search for similar items in EconPapers)
JEL-codes: E51 E52 E58 O53 (search for similar items in EconPapers)
Date: 2011
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Citations: View citations in EconPapers (5)

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