Price stabilization policy in an emerging economy: An asymmetric approach

Sriyana, Jaka

doi:10.14254/2071-8330.2019/12-2/10

Cited by 5 publications

(3 citation statements)

References 20 publications

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“…Government spending as the main fiscal policy instrument significantly contributes to the increase in the inflation rate. This finding reveals that fiscal policy has had an important role in inflation rate reduction in Indonesia for more last two decades (Sriyana, 2019).…”

Section: Resultsmentioning

confidence: 72%

Fiscal and monetary policies to reduce inflation rate in Indonesia

Sriyana

2022

J.Keb.Ek.U.

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Abstract Purpose – This paper analyzes the fiscal and monetary policies to control the inflation rate in Indonesia. Methods – This study uses a vector error correction model (VECM) to estimate the inflation model based on the annual data from 1991-2020. Findings – The results present the significant effects of fiscal and monetary variables on the inflation rate. These findings reveal that the fiscal and monetary policies are inflationary in this country. Specifically, government spending and narrow money significantly contribute to the increase in the inflation rate. The research also finds the impacts of those variables have occurred over a long period. This study asserts that the government budget deficit does not affect the domestic price level. This paper concludes that domestic inflation is closely related to both the fiscal and monetary financial sectors. Implication – The government, as well as the central bank, should apply prudent economic policies to control the inflation rate. Originality –This paper confirms the Fiscal Theory of Price Level (FTPL) as well as the quantity theory of money or the Cambridge equation. Abstrak Tujuan – Artikel ini menganalisis kebijakan fiskal dan moneter untuk mengendalikan laju inflasi di Indonesia. Metode – Penelitian ini menggunakan model VECM untuk menganalisis model inflasi berdasarkan data tahunan dari tahun 1991-2020. Temuan – Hasil analisis menunjukkan pengaruh signifikan variabel fiskal dan moneter terhadap tingkat inflasi. Temuan ini mengungkapkan bahwa kebijakan fiskal dan moneter bersifat inflasioner. Secara khusus, pengeluaran pemerintah dan uang sempit berkontribusi secara signifikan terhadap peningkatan tingkat inflasi. Penelitian ini juga menemukan bahwa dampak dari kebijakan tersebut telah terjadi dalam jangka waktu yang lama. Studi ini juga menemukan bahwa defisit anggaran pemerintah tidak mempengaruhi tingkat harga domestik. Hasil penelitian ini menyimpulkan bahwa inflasi domestik terkait erat dengan sektor keuangan fiskal dan moneter. Implikasi – Pemerintah serta bank sentral harus menerapkan kebijakan ekonomi yang hati-hati dan bersifat ketat untuk mengendalikan tingkat inflasi. Orisinalitas – Hasil studi ini mendukung teori fiskal penyebab inflasi (Fiscal Theory of Price Level) dan teori kuantitas uang atau persamaan Cambridge.

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Section: Resultsmentioning

confidence: 72%

Fiscal and monetary policies to reduce inflation rate in Indonesia

Sriyana

2022

J.Keb.Ek.U.

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“…While employing the Granger Causality test, a one-way causality was discovered, showing that government expenditure affects inflation. Following the pervasively high inflation rate in Indonesia, Sriyana (2019) employed the Non-Linear Autoregressive Distributed Lag (NARDL) model to examine asymmetries in the relationship between government expenditure and inflation from 1970-2017. Long run asymmetry was discovered with a positive relationship recorded between government expenditure and inflation.…”

Section: Literature Reviewmentioning

confidence: 99%

Effect of Government Expenditure on Inflation in Nigeria

Y.O.,

E.R.

2023

African Journal of Accounting and Financial Research

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This study examined the effect of government expenditure on inflation in Nigeria while disaggregating expenditure into capital and recurrent. The study also examined the response of inflation to changes in government expenditure in Nigeria. Secondary data collected from the Central Bank of Nigeria Statistical Bulletin was employed for a period of thirty-eight years (i.e. 1981-2019). The Auto Regressive Distributed Lag technique was employed. For the first model explaining government capital expenditure, short run estimates reveal that in the current period, government capital expenditure has a significantly negative relationship with inflation. For government recurrent expenditure, it was established that government recurrent expenditure has a positive relationship with inflation. The impulse response test used in analyzing the effect of an unanticipated change in government expenditure (capital and recurrent) on inflation shows that the effects of the change in both cases are temporary as they are seen to revert to the mean. The study recommends that the government should maintain a good strategic balance between capital and recurrent expenditure to prevent the economy from being consumption - based.

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“…Researchers mention such sources of endogeneity as trade, labour market flexibility, institutions, financial integration, the synchronisation of shocks, and output (Frankel & Rose, 1998;Melitz, 2004;Baele et al 2004, Ferto, 2018Moździerz, 2019;Androniceanu, Kinnunen, & Georgescu, 2020). Among other institutional factors of endogeneity, positive changes in government expenditure and money supply are one of the main (Sriyana, 2019;Androniceanu, 2020). However, the endogeneity of mentioned indicators is not always the case.…”

Section: Literature Reviewmentioning

confidence: 99%

How to increase the value of bilateral trade? Currency union versus fixed exchange rate regime

Stoykova¹

2021

EBER

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The objective of the article is to determine which exchange rate regime provides higher bilateral trade: fixed rate or currency union. Research Design & Methods: An index was designed based on variables commonly recognised as those that might affect the value of bilateral trade and those that are differently affected by fixed exchange rate regime and currency union. These variables are trade openness, trading partner trade importance, similarities of government debt and borrowing, similarities of inflation, and the correlation coefficient of detrended GDP. The index serves as a dependent variable in the main model, which was created using principal component analysis. I also ran models with both trade openness and trading partner trade importance as dependent variables. Findings: Although the index appeared to be higher in countries with a currency union, the results show that a currency union does not provide higher values of bilateral trade compared to a fixed exchange rate regime. Implications & Recommendations: Research can be repeated with more attention dedicated to independent variables. Alternative de facto classifications of exchange rate regimes can be used for future studies as well.Contribution & Value Added: The article contributes to existing studies on exchange rate regimes that commonly and interchangeably use notions of fixed exchange rate regime and currency union. To my best knowledge, there is no previous empirical research that would separately compare the impact on trade of these notions. The current study fills this gap. Article type:research article

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Price stabilization policy in an emerging economy: An asymmetric approach

Cited by 5 publications

References 20 publications

Fiscal and monetary policies to reduce inflation rate in Indonesia

Fiscal and monetary policies to reduce inflation rate in Indonesia

Effect of Government Expenditure on Inflation in Nigeria

How to increase the value of bilateral trade? Currency union versus fixed exchange rate regime

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