POLICY MIX: SUPPLY-SIDE POLICIES TO ADDRESS THE TREND OF RISING INFLATION

Donni Anugrah, Danny Hermawan, Denny Lie, Solikin Juhro and Misbahol Yaqin
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Danny Hermawan: Bank Indonesia
Misbahol Yaqin: Bank Indonesia

No WP/11/2023, Working Papers from Bank Indonesia

Abstract: In line with the dynamics of inflation in the last 10 years in ASEAN, especially inIndonesia, this research analyzes the factors that influence inflation in Indonesiaand ASEAN. Apart from that, this research also reviews the role of supply-sidepolicies to overcome inflation trends. The panel data used is 34 provinces inIndonesia from 2010Q1 to 2022Q4 using the GMM method. Meanwhile, for theASEAN analysis, data from three countries, namely Indonesia, the Philippines and Vietnam, were included for the same time period and used the ARDL method. Theestimation results for the Indonesian case show that food price inflation is influencedby Gross Regional Domestic Product (GRDP), wages, food imports, global food pricesand National Religious Holidays (HKBN). From a policy perspective, this researchalso finds that apart from (conventional) monetary policy which influences demand (through interest rates), there is a role for food subsidies which influence the supplyside in stabilizing food prices in Indonesia. These findings are also confirmed in theempirical analysis for selected ASEAN countries. This implies that a mix of monetarypolicy and food subsidies can be used to control food prices in Indonesia.

Keywords: Food Inflation; Food Subsidies; GMM (search for similar items in EconPapers)
JEL-codes: E31 E51 H20 (search for similar items in EconPapers)
Pages: 27 pages
Date: 2023
New Economics Papers: this item is included in nep-agr, nep-mon and nep-sea
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