Consumer Price Index Response to Changes in Monetary Policy in Indonesia
Keywords:
Consumer Price Index, Monetary Policy, Inflation, Interest Rate, Investment, VECM, Indonesia.Abstract
This study examines the impact of monetary policy variables tax revenue, inflation, interest rates, investment, and imports on the Consumer Price Index (CPI) in Indonesia from 2013 to 2023. Using a quantitative approach with the Vector Error Correction Model (VECM), the research analyzes both short-term and long-term dynamics among these macroeconomic indicators. The results reveal that inflation, interest rates, taxes, and investment significantly influence the CPI in the short term, while imports show no significant effect. In the long term, inflation, interest rates, and taxes remain significant determinants of CPI movements, indicating that both monetary and fiscal policies play crucial roles in maintaining price stability. The Impulse Response Function (IRF) analysis confirms that shocks to inflation and interest rates exert the strongest, though temporary, effects on CPI fluctuations. These findings underscore the importance of coordinated monetary and fiscal policy in promoting economic stability and controlling inflation in Indonesia.
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