Share:


Monetary policy and the causality between inflation and money supply in Indonesia

    Gatot Sasongko Affiliation
    ; Andrian Dolfriandra Huruta Affiliation

Abstract

Conceptually and empirically, inflation volatility in Indonesia is a monetary and fiscal phenomenon. This study focuses on the macroeconomic policy and public policy especially causality between two variables namely inflation and money supply in Indonesia. This study uses Indonesian macroeconomic data of inflation and money supply from the Bank of Indonesia publication during 2007.1–2017.7. Inflation is measured by the consumer price index, reflects the annual percentage change in costs of acquiring a basket of goods and services to the average consumers that may change at specified intervals. Meanwhile, money supply is measured by the currency, demand deposits, time deposits, and saving deposits. Methodically, this study uses the Granger Causality model to determine the causality between inflation and money supply. The results show that there is a one-way causality between inflation and money supply in Indonesia. These findings imply that money supply causes inflation, but not vice versa. This condition implies that the role of Indonesian Government and Bank of Indonesia were very crucial in managing and controlling macroeconomic policy and public policy. Then, analysis of money supply and inflation also related to impacting factors such as money laundering, role of banks, taxation, tax evasion, and corruption.

Keyword : inflation, macroeconomic policy, money supply, public policy

How to Cite
Sasongko, G., & Huruta, A. D. (2018). Monetary policy and the causality between inflation and money supply in Indonesia. Business: Theory and Practice, 19, 80-87. https://doi.org/10.3846/btp.2018.09
Published in Issue
May 30, 2018
Abstract Views
1180
PDF Downloads
1486
Creative Commons License

This work is licensed under a Creative Commons Attribution 4.0 International License.

References

Amin SB (2011) Quantity theory of money and its applicability: the case of Bangladesh. World Review of Business Research 1 (4): 33-43 https://www.researchgate.net/publica-tion/305493357_Quantity_Theory_of_Money_and_its_Ap-plicability_The_Case_of_Bangladesh

Bank Indonesia (2015) BI dan Pemerintah Sepakati Langkah Untuk Jaga Inflasi 2016. Bank Indonesia http://www.bi.go.id/id/ruang-media/siaran-pers/Pages/sp_179615.aspx

Bank Indonesia (2017a) Bank survey during the second quarter of 2017: new credit growth is estimated to increase in the third quarter of 2017. Communication Department http://www.bi.go.id/en/ruang-media/info-terbaru/Pages/Pertumbuhan-Kredit-Baru-Diperkirakan-Semakin-Meningkat-pd-Tw-III-2017.aspx

Bank Indonesia (2017b) Laporan Inflasi (Indeks Harga Konsumen). Bank Indonesia https://www.bi.go.id/id/moneter/inflasi/data/Default.aspx

Bank Indonesia (2017c) Statistik Ekonomi dan Keuangan Indonesia (SEKI). Bank Indonesia https://www.bi.go.id/id/statistik/seki/terkini/moneter/Contents/Default.aspx

Bank Indonesia (2017d) Tujuan Kebijakan Moneter Bank In-donesia. Bank Indonesia http://www.bi.go.id/id/moneter/tujuan-kebijakan/Contents/Default.aspx

Bank Indonesia (2017e) Uang Beredar Tumbuh Meningkat pada April 2017. Bank Indonesia http://www.bi.go.id/id/ruang-media/info-terbaru/Pages/Uang-Beredar-Tumbuh-Meningkat-pada-April-2017.aspx

Bikas E, Bagotyrius G, Jakubauskaitė A (2017) The impact of value-added tax on the fiscal sustainability. Journal of Security and Sustainability Issues 7 (2): 267-285. https://doi.org/10.9770/jssi.2017.7.2(8)
Chukwu JO (2013) Budget deficits, money growth and price level in Nigeria. African Development Review 25 (4): 468-477. https://doi.org/10.1111/1467-8268.12042

Denbel FS, Ayen YW, Regasa TA (2016) The relationship between inflation, money supply and economic growth in Ethiopia: Co integration and Causality Analysis. International Journal of Scientific and Research Publications 6 (1): 556-565 www.ijsrp.org

Dwiyanto A (1997) Pemerintah Yang Efisien, Tanggap dan Akuntabel: Kontrol atau Etika?. Jurnal Kebijakan dan Administrasi Publik 1 (2): 1-14 http://i-lib.ugm.ac.id/jurnal/detail.php?dataId=7880

Giriūnienė G, Giriūnas L (2016) Identification of the complex tax system evaluation criteria: theoretical aspect. Journal of Security and Sustainability Issues 7 (2): 77-85.

Hadijah S (2016) Penghasilan Tidak Kena Pajak (PTKP), Apa Itu? https://www.cermati.com/artikel/penghasilan-tidak-kena-pajak-ptkp-apa-itu

Hariyanto E (2006) Efek dan Dampak Kebijakan Debt Switching Terhadap Keuangan Negara. Jurnal Kebijakan dan Admi-nistrasi Publik 10 (1): 65-96 https://journal.ugm.ac.id/jkap/article/view/8319/6428

Hervino AD (2011) Volatilitas inflasi di indonesia: fiskal atau mo-neter? Finance and Banking Journal 13 (2): 669-672 https://perbanas.id/jurnal/index.php/jkp/article/view/254

Husain F, Abbas K (2000) Money, Income, prices, and causality in Pakistan: a trivariate analysis 178 https://ideas.repec.org/p/pid/wpaper/2000178.html

Jahan S, Papageorgiou C (2014) What is monetarism? Its emphasis on money’s importance gained sway in the 1970s. Finance & Development (March): 38-39 http://www.imf.org/external/pubs/ft/fandd/2014/03/pdf/basics.pdf

Kashem MA, Sharmin H (2012) A study of causality between money supply and price level in Bangladesh: 1976 to 2012 https://www.academia.edu/7688356/A_Study_of_Causal-ity_between_Money_Supply_and_Price_Level_in_Bangla-desh_1976_to2012

Kaźmierczyk J, Aptacy M (2016) The management by objectives in banks: the Polish case. Entrepreneurship and Sustainability Issues 4 (2): 1-13. https://doi.org/10.9770/jesi.2016.4.2(3)

Kesavarajah M, Amirthalingam K (2012) The nexus between money supply and inflation in Sri Lanka. Jaffna University International Research Conference, 232 "http://www.conf.jfn.ac.lk/juice2012/papers/TrackI/JUICE12-TrackI-pg232.pdf

Komisi Pemberantasan Korupsi (2017) Laporan Tahunan KPK, Komisi Pemberantasan Korupsi https://www.kpk.go.id/id/.../laporan.../4172-laporan-tahunan-kpk-2

Kordík M, Kurilovská L (2017) Protection of the national financial system from the money laundering and terrorism financing. Entrepreneurship And Sustainability Issues 5 (2): 243-262. https://doi.org/10.9770/jesi.2017.5.2(7)

Otoritas Jasa Keuangan (2017) Laporan triwulanan III 2017, Otoritas Jasa Keuangan https://www.ojk.go.id/id/data-dan-statistik/laporan-triwulanan/Documents/Laporan Triwulan OJK III-2017.pdf

Luzgina A (2017) Problems of corruption and tax evasion in construction sector in Belarus. Entrepreneurship And Su-stainability Issues 5 (2): 263-282. https://doi.org/10.9770/jesi.2017.5.2(8)

Mishkin FS (2011) Monetary policy strategy: lessons from the crisis. 16755. Cambridge http://www.nber.org/papers/w16755

Pusat Pelaporan dan Analisis Transaksi Keuangan (2016) Ti-pologi Pencucian Uang Berdasarkan Putusan Pengadilan Tahun 2015 http://www.ppatk.go.id//backend/assets/images/publikasi/1484876309.pdf

Rosadi D (2012) Ekonometrika dan Analisis Runtun Waktu Terapan Dengan Eviews. Yogyakarta: ANDI.

Su C-W et al. (2016) Is there causal relationship between money supply growth ad inflation in China? Evidence from quantity theory of money. Review of Development Economics 20 (3): 702-719 https://onlinelibrary.wiley.com/doi/pdf/10.1111/rode.12194

Trisdian PA, Pratomo Y, Saraswati BD (2015) Volatilitas Inflasi Daerah di Indonesia: Fenomena Moneter atau Fiskal. KRITIS, Jurnal Studi Pembangunan Interdisiplin XXIV(1): 76-89 http://ejournal.uksw.edu/kritis/article/view/493/327

Winarno WW (2015) Analisis Ekonometrika dan Statistika dengan Eviews (4th ed) Yogyakarta: UPP STIM YKPN.

Wolde-Rufael Y (2008) Budget deficits, money and inflation: the case of Ethiopia. The Journal of Developing Areas 42 (1): 183-199 https://muse.jhu.edu/article/252005/pdf

World Bank (2017) World Bank Reports, World Bank http://www.worldbank.org/en/region/eca/brief/office-of-the-chief-economist-europe-andcentralasia?cid=ECA_GA_ECA_EN_EXTP&gclid=EAIaIQobChMIxZ2jxMeo1QIVVAoqCh0jzwSzEAAYASAAEgIHhvD_BwE

Zhang C (2013) Monetary dynamics of inflation in China. The World Economy 36 (6) http://onlinelibrary.wiley.com/doi/10.1111/twec.12021/pdf