Monetary Policy Analysis in Strengthening Economic Fundamentals in Indonesia

Abstract

This study aims to determine the monetary policy in strengthening the economic fundamentals. The variables in this study are the Money Supply, Exchange Rate, Inflation and Economic Growth (GDP). The analysis method used in this study is using the Vector Auto Regression model or abbreviated as the VAR method with the Impulse Response Function (IRF) test, Forecast Error Variance Decomposition (FEVD), stationarity test, cointegration test, lag structure stability test, and optimal lag length test. The results of the Vector Autoregression study using the lag 2 basis show that there is a contribution from each variable to the variable itself and other variables. The results of the Vector Autoregression analysis also show that past variables (t-1) contribute to the current variables both to the variables themselves and other variables. From the results of the analysis, there is a reciprocal relationship between one variable and another. Response Function analysis shows the response of other variables to changes in one variable in the short, medium and long term, and it is known that the stability of the response of all variables is formed in the short, medium and long term. Variance AnalysisDecomposition shows the existence of variables JUB and Inflation.