The Effect of Monetary Variables on Household Consumption in Indonesia: Empirical Analysis

Abstract

This study aims to analyze the influence of the main monetary variables of interest rates, money supply (JUB), and inflation on household consumption in Indonesia. Household consumption is the largest component in the structure of Gross Domestic Product (GDP), so its fluctuations greatly affect the direction of national economic growth and stability. A deep understanding of the monetary determinants of consumption is important in formulating policies that are adaptive to macroeconomic changes. This study uses a quantitative approach with the path analysis method to evaluate both direct and indirect influences between variables. The data used are sourced from national official institutions in the period 2003 to 2022. The results of the analysis show that only the money supply variable has a direct and significant influence on household consumption. In contrast, interest rates and inflation do not have a significant direct or indirect influence on consumption. However, interest rates significantly affect inflation, although the mediating effect of inflation on consumption is not statistically proven. The implications of these findings indicate that in the Indonesian context, liquidity (in the form of money supply) plays a more important role in driving consumption expenditure compared to price mechanisms or borrowing costs. Therefore, careful liquidity management by monetary authorities is crucial to maintaining the continuity of consumption growth and national economic stability.