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ISSN No:-2456-2165
Abstract:- The short-term goal of this study is to analyze inflation fluctuations so that it does not disturb the economy
the contribution of changes in macroeconomic too much. So important is the control of inflation, the
instruments due to changes in monetary policy government or the finance minister, in this case, need to set
instruments with inflation expectations that can an inflation target. According to Warjiyo (2003), inflation
maintain economic stability, including (Exchange Rate, targeting is a framework for monetary policy that is marked
Money Supply, Inflation Expectations, GDP and by announcements to the public about the inflation target
Inflation). The specific target in this study is to find the figures for a period. High inflation can lead to a worsening
simultaneity and Leading indicator of the effectiveness income distribution which means it will also increase
of controlling economic stability in each country of poverty, reduce savings deposits which are a source of
Indonesia, Vietnam, and India. The material used in this investment in developing countries, cause a trade balance
study is quantitative material with simultaneous data, deficit, inflate the amount of foreign debt and can lead to
secondary data sources in time series that is from the political instability (Vymyatnina, 2005). Considering how
first quarter of 2000 to the first quarter of 2017. The crucial this discussion of inflation is, it is no wonder that BI
data analysis model in this study is the Simultaneous has set it as the ultimate goal in implementing its monetary
analysis model. The results showed that there was a policy. The phenomenon of the problem in this study is seen
simultaneous effect of the exchange rate, the money from the various responses of macroeconomic variables to
supply, and inflation expectations on changes in the the ability of monetary policy transmission in controlling
macroeconomic and macroeconomic stability of the IVI the economy in Indonesia, Vietnam, and India, as follows:
countries. The results showed that macroeconomic
variables have a simultaneous effect on economic No Year Country
stability. The exchange rate, money supply, and inflation
expectations have no significant effect on the Indonesia Vietnam India
macroeconomic stability of IVI countries. 1 2000 3,72 -1,71 4,01
Keywords:- Exchange Rate, JUB, Inflation Expectations, 2 2001 11,50 -0,43 3,68
GDP, Inflation. 3 2002 11,88 3,83 4,39
4 2003 6,59 3,21 3,81
I. INTRODUCTION
5 2004 6,24 7,75 3,77
Monetary policy in achieving intermediate and final
6 2005 10,45 8,28 4,25
targets can be predicted in the short and long term. The
intermediate target is macroeconomic stability, while the 7 2006 13,11 7,38 6,15
final target is price stability. The monetary transmission has
8 2007 6,41 8,3 6,37
problems with a time lag (Alani, 2016). The delay effect can
occur due to obstacles from other macroeconomic variables 9 2008 9,78 23,11 8,35
(Natsir, 2011). Interest can influence the delay effect 10 2009 4,81 7,05 10,88
(Wróbel, 2013). Zega (2015) exchange rates affect the
success of the monetary policy. Monetary transmission is 11 2010 5,13 8,86 11,99
significant in maintaining economic stability (Rusiadi; 12 2011 5,36 18,67 8,86
Novalina, 2018). Onyeiwu (2012) concluded that exports as
a variable that can affect the success of the final target. 13 2012 4,28 9,09 9,31
14 2013 6,41 6,59 10,91
Alfian (2011) states that asset paths affect economic
growth and inflation. Natsir (2015) which shows that labor 15 2014 6,39 4,08 6,65
and net exports influence economic growth. Silvia (2013) 16 2015 6,36 0,87 4,91
economic stability is affected by consumption, net exports
and investment. Indonesia rose to fifth place because of the 17 2016 3,53 3,24 4,94
increased growth of chemical products, as well as industrial 18 2017 3,44 2,65 5,03
manufacturing and financial services (Watson, 2018). The
increase in inflation as an indication of economic stability is Table 1:- Inflation in IVI countries (in percent)
experiencing disruption. Therefore, when the price Source: Worldbank
disruption occurs, the government must be able to control
The data above shows that inflation in Indonesia, Mechanism of Monetary Policy Transmission of Interest
Vietnam, and India (IVI) tends to fluctuate during the period Rate Pathways
2000 to 2017. The movements are almost the same in The interest rate is the critical monetary transmission
Indonesia, Vietnam, and India, which is a significant mechanism in the IS model, the LM model, the AD model,
increase in inflation in 2008. It caused by the impact of and the US model. An increase in the stock of money will
global problems, namely the increase in global food prices. reduce the real interest rate and the cost of capital and
In general, people want the cost of living needs that are increase business investment. Increasing investment will
stable from time to time and want income to increase increase aggregate demand. A decrease in the real interest
continuously or at a macro level of economic growth rate will also increase spending on home purchases and
accompanied by excellent economic stability. Economic durable goods. Therefore a decrease in the interest rate due
stability is needed to keep people's income from being to monetary expansion will increase spending or
eroded by price increases (inflation). That way, the consumption and aggregate demand. At a shallow nominal
community will also become more prosperous (Boediono, interest rate, monetary expansion will increase expectations
2013). of the price level and inflation. Consequently, the real
interest rate falls. A decrease in the real interest rate will
If someone is reluctant to save, the business and reduce the cost of capital and the cost of holding money,
investment world will be challenging to develop. Inflation is then stimulate business and consumer spending. Increasing
also able to widen the income gap between the rich and the business and consumer spending will ultimately increase
poor. Creditors or lenders will also be affected by inflation aggregate demand. The flow rate transmission mechanism is
because the return value is lower than when borrowing formulated in two forms, such as:
money. Inflation also causes production costs to rise so that
it can hamper productive investment by producers, so m r y
producers are reluctant to continue production. Producers
can stop their production for a while; even if they are unable m p r y
to keep up with the rate of inflation, production can go out
of business. It can be seen that the economic growth of where:
Indonesia, Vietnam, and India has seen a slowdown. m = nominal money stock,
According to Hussain (2015), to maintain an adequate r = real interest rate,
growth rate, it is necessary to intervene from the p = rice level expectation,
government to reduce the primary sector and increase the
= real investment, and
role of the non-primary sector. The non-primary sector, in
y = aggregate real output
this case, needs to be improved, such as the industrial sector
that can contribute a GDP of 9.3% in 1972 to 28.34% in
Exchange Rate Monetary Monetary Transmission
2008. In 1972 to 1996 there was a transformation of the
Mechanisms
economic structure in Indonesia that was able to cause an
The mechanism of transmission of asset price flows
increase in the growth rate in Indonesia with an average
consists of the exchange rate effect, Tobin's q theory, and
growth of 7% per year so that Indonesia can enter the
the wealth effect. Global economic growth and flexible
HPAES (High Performing Asian Economies) group of
exchange rates have increased the role of international
countries. Some inconsistencies of research gaps regarding
monetary policy in determining a country's foreign
Inflation and Monetary Policy Analysts at home and abroad,
exchange rates. The monetary expansion will initially
as well as the author's motivation to re-raise this study with
reduce the domestic real interest rate and then cause foreign
the Simultaneous model and ARDL panel.
currency deposits to rise. An increase in the value of foreign
currency deposits against domestic currency deposits will
The results of this analysis are expected to become
result in an appreciation of foreign currency exchange rates
input for policymakers such as Bank Indonesia and the
and depreciation of the domestic currency exchange rate.
Minister of Finance to predict economic stability. Hülsewig
Depreciation of the domestic currency exchange rate results
(2010), the impact of rising interest rates will increase prices
in the relative price of products or exports cheaper so that
m s q i y
Fig 2:- Framework for Thinking: Monetary Transmission
where:
s = stock price expectations, and
q = the ratio of the stock market price to the cost of
replacing capital.
After knowing that simultaneous identification in the IV. RESULT AND DISCUSSION
equation is in the exact identified condition, 2SLS
simultaneous analysis can be done. The 2SLS simultaneous The simultaneous model of the effect of variable two
analysis must meet the classical assumptions where the simultaneous equations is performed using the Two-Stage
classic assumptions are used: Least Squares model. The estimation results of the equation
system with Two-Stage Least Squares are shown in the table
- Test data normality below. From the table, it is known that 2 (two) simultaneous
- Autocorrelation test model equations:
LOG(GDP)=C(10)+C(11)*LOG(ER)+C(12)*LOG(MS)+
C(13)*LOG(EINF)+C(14)*LOG(INF)+ 1
LOG(INF)=C(20)+C(21)*LOG(ER)+C(22)*LOG(MS)+
C(23)*LOG(EINF)+C(24)*LOG(GDP)+ 2
Equation: LOG(GDP)=C(10)+C(11)*LOG(ER)+C(12)*LOG(MS)+C(13)
*LOG(EINF)+C(14)*LOG(INF)
Instruments: C KURS MS EINF GDP INF
Observations: 54
R-squared 0.835257 Mean dependent var 6.523242
Adjusted R-squared 0.825422 S.D. dependent var 1.573042
S.E. of regression 0.657257 Sum squared resid 28.94314
Durbin-Watson stat 0.436543
Equation: LOG(INF)=C(20)+C(21)*LOG(ER)+C(22)*LOG(MS)+C(23)
*LOG(EINF)+C(24)*LOG(GDP)
Instruments: C ER MS EINF GDP INF
Observations: 54
Based on the results of the structural equation output, LOG (GDP) = 8,241 – 0,512*LOG(ER) -
it can be seen that there are two equations, following each 1,201*LOG(MS) + 0,541 *LOG
description in 2 equations: (EINF)+0,066*LOG(INF)+ 1
Equation 1 Test Result
Based on the estimation results above can show that
The first equation is the equation used to find out
𝑅2 = 0.835257 which means that the ER, MS, Inflation and
simultaneously on economic growth and inflation with the
Inflation Expectations variables can explain GDP of 83.52%
following equation as follows:
and the remaining 16.48% of GDP is influenced by other
variables beyond the estimation in the model. Based on the
LOG(GDP)=C(10)+C(11)*LOG(ER)+C(12)*LOG(MS)+
estimation results obtained by the t-count value, there are 3
C(13)*LOG(EINF)+C(14)*LOG(INF)+ 1 (three) variables which significantly affect the GDP
variable, namely the Exchange and MS at alpha = 10 %,
Based on the equation, the results of the eviews Exchange rates with prob value 0,000 < 0.10 and MS with
output with the Two-Stage Least Square model are as prob value 0,000 < 0.10. So that the exchange rate and MS
follows: significantly influence the GDP variable.