The Exchange Rate Plays a Crucial Role in the Consumer Price Index as it Affects the Inflation
Abstract views: 141 | Pdf downloads: 164
Abstract
Purpose: This study aims to analyze the exchange rates and inflation on the Consumer Price Index (CPI) in Indonesia. Fluctuating exchange rates and high inflation are often major concerns in the economy, as both can affect people's purchasing power and overall economic stability.
Methodology: The method used in this study is multiple regression analysis, with CPI as the dependent variable, and exchange rates and inflation as independent variables. The data used covers the period 2020 to 2023 obtained from the Central Statistics Agency (BPS) and Bank Indonesia.
Finding: The results of the study show that both exchange rates and inflation have a significant effect on CPI. In particular, an increase in the exchange rate tends to increase the price of imported goods, which in turn drives up the CPI. In addition, high inflation contributes to an increase in people's cost of living.
Implication: The government needs to maintain exchange rate stability to prevent an increase in the price of imported goods that can affect the CPI. In addition, controlling inflation is key to maintaining people's purchasing power and economic stability.
Originality: This study makes a new contribution by analyzing the simultaneous impact of exchange rates and inflation on CPI in Indonesia during the period 2020-2023.
Keywords: Consumer Price Index, Exchange Rate, Inflation.
References
Adam, K., & Tzamourani, P. (2016). Distributional consequences of asset price inflation in the Euro Area. European Economic Review, 89, 172-192. https://doi.org/10.1016/j.euroecorev.2016.07.005
Aoki, K. (2001). Optimal monetary policy responses to relative-price changes. Journal of Monetary Economics, 48, 55-80. https://doi.org/10.1016/S0304-3932(01)00069-1
Bank of England. (2000). Economic models at the Bank of England. www.bankofengland.co.uk/workingpapers/index.htm,
Campa, J. M., & Goldberg, L. S. (2005). Exchange rate pass-through into import prices. Review of Economics and Statistics, 87(4), 679-690. https://doi.org/10.1162/003465305775098189
Çitçi, S. H., & Kaya, H. (2023). Exchange rate uncertainty and the connectedness of inflation. Borsa Istanbul Review, 23(3), 723-735. https://doi.org/10.1016/j.bir.2023.01.009
Clarida, R., Galı, J., & Gertler, M. (2002). A simple framework for international monetary policy analysis. Journal of monetary economics, 49(5), 879-904. https://doi.org/10.1016/S0304-3932(02)00128-9
Devereux, M. B., & Engel, C. (2002). Exchange rate pass-through, exchange rate volatility, and exchange rate disconnect. Journal of Monetary economics, 49(5), 913-940. https://doi.org/10.1016/S0304-3932(02)00130-7
Gagnon, J. E., Ihrig, J., Gov, J. E. G., & Gov, I. (2001). Monetary Policy And Exchange Rate Pass-Through. Board of Governors of the Federal Reserve System International Finance Discussion Papers Number 704. https://www.federalreserve.gov/pubs/ifdp/2001/704/ifdp704.pdf
Johnson, R. Arnold., & Wichern, D. W. (2007). Applied multivariate statistical analysis. Prentice Hall; Pearson Education Limited. https://www.pdfdrive.com/an-introduction-to-modern-econometrics-using-stata-d158692521.html
Kara, A., & Nelson, E. (2003). The exchange rate and inflation in the UK. Scottish Journal of Political Economy, 50(5), 585-608. https://doi.org/10.1111/j.0036-9292.2003.05005003.x
Svensson, L. (1998). Open-Economy Inflation Targeting. NBER Working Paper. https://www.nber.org/system/files/working_papers/w6545/w6545.pdf
Taylor, J. B. (2000). Low inflation, pass-through, and the pricing power of firms. European economic review, 44(7), 1389-1408. https://doi.org/10.1016/S0014-2921(00)00037-4
Treasury, H. (1993). Financial Statement and Budget Report 1993-94. House of Commons. https://assets.publishing.service.gov.uk/media/5a7c096fe5274a7202e1927a/0547.pdf
Wooldrige, J. M. (2005). Second Edition Second Edition. In Dairy Science & Technology, CRC Taylor & Francis Group.
Copyright (c) 2024 Lola Fitria Sari, Nana Nawasiah, Agustinus Miranda Wijaya
This work is licensed under a Creative Commons Attribution-ShareAlike 4.0 International License.
Authors who publish with this journal agree to the following terms:
- Authors retain copyright and grant the journal right of first publication with the work simultaneously licensed under a Creative Commons Attribution-ShareAlike 4.0 International License that allows others to share the work with an acknowledgement of the works authorship and initial publication in this journal.
- Authors are able to enter into separate, additional contractual arrangements for the non-exclusive distribution of the journals published version of the work (e.g., post it to an institutional repository or publish it in a book), with an acknowledgement of its initial publication in this journal.
- Authors are permitted and encouraged to post their work online (e.g., in institutional repositories or on their website) prior to and during the submission process, as it can lead to productive exchanges, as well as earlier and greater citation of published work (See The Effect of Open Access).
