“…From there, it can be inferred that during the COVID-19 pandemic period, when ER appreciated, the SR responded negatively. These findings indicate that during the initial month of the pandemic, the relationship between ER and SR slanted; these findings are in line with [ 23 , 25 ]. Moreover, from the second month onward, a positive shock in the ER is associated with an increase in the SR. Figure 1 Impulse Response Function, This figure displays the impulse response function estimated by using the PVAR model.…”
“…From there, it can be inferred that during the COVID-19 pandemic period, when ER appreciated, the SR responded negatively. These findings indicate that during the initial month of the pandemic, the relationship between ER and SR slanted; these findings are in line with [ 23 , 25 ]. Moreover, from the second month onward, a positive shock in the ER is associated with an increase in the SR. Figure 1 Impulse Response Function, This figure displays the impulse response function estimated by using the PVAR model.…”
“…1. In the context of emerging markets, Prabheesh et al (2021) suggest that the pandemic created extreme uncertainty, which caused ineffective transmission of interest rate monetary policy to inflation. Furthermore, Prabheesh et al (2023) show that public debt and non-cash transaction positively affected the inflation rate during the pandemic.…”
Purpose
This paper aims to examine the impact of COVID-19 on inflation in Indonesia. There are two questions in this study: (1) Is there an impact of COVID-19 on inflation in Indonesia? and (2) whether there are differences in the impact of COVID-19 on regional inflation in Indonesia, considering the different intensities associated with COVID-19.
Design/methodology/approach
The estimation technique showing the impact of the COVID-19 pandemic on inflation uses the difference-in-differences (DID) method described by Pischke (2008). The core idea of the estimation above is continuous DID using panel data. No province was affected by COVID-19 before 2020:Q1. Once COVID-19 hits the economy, the effects vary from one district to the other.
Findings
The authors find that the severity of the COVID-19 pandemic negatively affects inflation – the more severe the pandemic, the lower the inflation. This finding conforms with several studies suggesting higher demand pressures than supply during the pandemic. Compared with supply-side indicators such as production index, demand-side indicators – such as consumer confidence index and real sales index – fell more sharply.
Research limitations/implications
In the Introduction section, the authors have added a discussion that indeed the COVID-19 pandemic affects inflation through both the demand- and supply-side shocks. While factors driving regional differences in inflation rate are important research and policy questions, the analysis of these factors is outside the scope of this study. The study focuses on the COVID-19 impact on inflation and whether the pandemic disproportionately affects some regions than the others.
Practical implications
This research is important to provide an understanding of the nature of the pandemic on inflation in the context of the Indonesian economy, which is essential to policy formulation, especially for the Central Bank in carrying out the mandate to maintain rupiah stability. This issue is due to the implications of different policy responses between demand- and supply-side shocks.
Originality/value
As a novelty in this study and research gap, the authors use a continuous DID method to account for the varying intensity of COVID-19 across the provinces. In particular, the authors use the number of positive cases of COVID-19 per 1,000 population as opposed to just a binary indicator of before-and-during COVID-19 across provinces.
“…Numerous studies show the adverse effect of COVID-19 on stock market movements ([ 4 , 10 , 14 , 15 , 17 , 22 , 29 ]; and [ 24 , 25 , 27 , 28 ] [ 21 , 26 , 31 , 32 , 36 , 37 ]). However, the impact of the behaviour of foreign investors in the course of the COVID-19 pandemic on stock market movements is rare.…”
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