THE IMPACT OF EXCHANGE RATE DEPRECIATION AND THE MONEY SUPPLY GROWTH ON INFLATION: THE IMPLEMENTATION OF THE THRESHOLD MODEL

Authors

Rizki E. Wimanda, Bank Indonesia, IndonesiaFollow

Document Type

Article

Abstract

This paper investigates the impact of exchange rate depreciation and money growth to the CPI inflation in Indonesia. Using monthly data from 1980:1 to 2008:12, our econometric evidence shows that there are indeed threshold effects of money growth on inflation, but no threshold effectof exchange rate depreciation on inflation. Even though the threshold value for exchange rate depreciation is found at 8.4%, the F-test suggests that there is no significant difference between the coefficient below and that above the threshold value. While, two threshold values are found for money growth, i.e. 7.1% and 9.8%, and they are statistically different. The impact on inflation is high when money grows by up to 7.1%, it is moderate when money grows by 7.1% to 9.8%, and it is low when money grows by above 9.8%. JEL Classification: C22; E31; E51. Keywbords: , ;

Recommended Citation

Wimanda, Rizki E. (2011) "THE IMPACT OF EXCHANGE RATE DEPRECIATION AND THE MONEY SUPPLY GROWTH ON INFLATION: THE IMPLEMENTATION OF THE THRESHOLD MODEL," Bulletin of Monetary Economics and Banking: Vol. 13: No. 4, Article 3.
DOI: https://doi.org/10.21098/bemp.v13i4.399
Available at: https://bulletin.bmeb-bi.org/bmeb/vol13/iss4/3

First Page

391

Last Page

414

Creative Commons License

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

Country

Indonesia

Affiliation

Bank Indonesia