Base Money and Exchange Rate: Sources of Inflation in Indonesia during the Post-1997 Financial Crisis

Reza Siregar and Gulasekaran Rajaguru ()

No 2002-21, Centre for International Economic Studies Working Papers from University of Adelaide, Centre for International Economic Studies

Abstract: The magnitude of the rise in inflation rate in Indonesia during the height of the 1997 financial crisis was among the sharpest that the East Asian economies has ever witnessed in the recent decades. This paper empirically tests the monetary hypotheses of inflation and compares and contrasts the sources of price changes during the pre- and post-1997 financial crisis. We find a high explanatory power of the monetary model for the post-crisis period, but not for the pre-crisis. The high volatilities of the local currency and the unprecedented rapid growth rate of base money during the post-crisis are found to be the two key monetary determinants of the inflation in the country.

Keywords: Inflation; Base Money; Expected Depreciation; Exchange Rate Policy; East Asian Financial Crisis (search for similar items in EconPapers)
JEL-codes: E41 E51 E52 E58 F41 (search for similar items in EconPapers)
Pages: 47 pages
Date: 2002-08
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Journal Article: Base Money and Exchange Rate: Sources of Inflation in Indonesia during the Post-1997 Financial Crisis (2005)
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