Authors retain the copyright without restrictions for their published content in this journal. HSSR is a SHERPA ROMEO Green Journal.
Publishing License
This is an open-access article distributed under the terms of
FLEXIBLE INFLATION TARGETING AND INFLATION PERSISTENCE IN INDONESIA: THE TRADITIONAL UNIVARIATE AND FRACTIONAL INTEGRATED UNIVARIATE APPROACHES
Corresponding Author(s) : Zainuri Zainuri
Humanities & Social Sciences Reviews,
Vol. 8 No. 5 (2020): September
Abstract
Purpose of the study: The high degree of inflation persistence will impact the Indonesian economy. The purpose of this study is to determine the degree of inflation persistence in Indonesia following the adoption of a flexible Inflation Targeting Framework (ITF).
Methodology: Traditionally integrated univariate and fractional approach will be carried out in this research. The inflation variables used are core inflation, administered price inflation, volatile inflation, and general inflation. The data used is from 2014M1 to 2019M2.
Main Findings: After data analysis, the researchers found that high persistence behaviors are found, especially in the core, administered, and volatile inflation, following the flexible adoption of the ITF. The time it takes for inflation to return to equilibrium is 1 to 8 months for each group.
Applications of this study: The result is important for the highest authorities in improving their policy. Structural improvements through monetary policy based on inflation expectations, increasing the transparency of food prices, and synergy with Central as well as Regional Inflation Control is suggested for the authorities.
Novelty/Originality of this study: This study presents a different perspective of research within the inflation topic. It takes the recent policy implementation of a country and analyses its effect. To the best of the authors knowledge, this research is the first to explain the effect of the Inflation Targeting Framework on Indonesia's inflation condition.
Keywords
Download Citation
Endnote/Zotero/Mendeley (RIS)BibTeX
- Ackley, G. (1959). Administrated Prices and the Inflationary Process. The American Economic Review, 49(2), 419–430.
- Alam, N. (2020). Do Oil Price Shock, And Other Macroeconomic Variables Affect The Stock Market: A Study Of The Saudi Stock Market. Humanities & Social Sciences Reviews, 8(3), 1234-1242. https://doi.org/10.18510/hssr.2020.83126 DOI: https://doi.org/10.18510/hssr.2020.83126
- Arimurti, T., & Trisnanto, B. (2011). Persistence of Inflation in Jakarta and Its Implication on The Regional Inflation Control Policy. Bulletin of Monetary, Economics and Banking, 14(1), 5–30. https://doi.org/10.21098/bemp.v14i1.76 DOI: https://doi.org/10.21098/bemp.v14i1.76
- Ayd, C., Esen, Ö., & Bayrak, M. (2016). Inflation and Economic Growth : A Dynamic Panel Threshold Analysis for Turkish Republics in Transition Process. Procedia - Social and Behavioral Sciences, 229, 196–205. https://doi.org/10.1016/j.sbspro.2016.07.129 DOI: https://doi.org/10.1016/j.sbspro.2016.07.129
- Balcilar, M., Gupta, R., & Jooste, C. (2016). Analyzing South Africa's inflation persistence using an ARFIMA model with Markov-switching fractional differencing parameter. The Journal of Developing Areas, 50(1), 47-57. https://doi.org/10.1353/jda.2016.0004 DOI: https://doi.org/10.1353/jda.2016.0004
- Ball, L. M., & Romer, D. (2003). Inflation and the Informativeness of Prices. Journal of Money, Credit, and Banking. https://doi.org/10.1353/mcb.2003.0008 DOI: https://doi.org/10.1353/mcb.2003.0008
- Batini, N., & Nelson, E. (2001). Optimal horizons for inflation targeting. Journal of Economic Dynamics and Control, 25(6-7), 891–910. https://doi.org/10.1016/S0165-1889(00)00060-9 DOI: https://doi.org/10.1016/S0165-1889(00)00060-9
- Bermingham, C. (2010). A critical assessment of existing estimates of US core inflation. Journal of Macroeconomics, 32(4), 993–1007. https://doi.org/10.1016/j.jmacro.2010.05.003 DOI: https://doi.org/10.1016/j.jmacro.2010.05.003
- Bratsiotis, G. J., Madsen, J., Martin, C., Bratsiotis, G. J., Madsen, J., & Martin, C. (2016). Inflation Targeting and Inflation Persistence. Economic and Political Studies. 3(1). 3-17. (October). https://doi.org/10.1080/20954816.2015.11673835 DOI: https://doi.org/10.1080/20954816.2015.11673835
- Canarella, G., & Miller, S. M. (2017a). Inflation Persistence Before and After Inflation Targeting : A Fractional Integration Approach. East Econ. J., 43, 78–103. https://doi.org/10.1057/eej.2015.36 DOI: https://doi.org/10.1057/eej.2015.36
- Canarella, G., & Miller, S. M. (2017b). Inflation Targeting and Inflation Persistence : New Evidence from Fractional Integration and Cointegration. Journal of Economics and Business. 92(5), 45-62. https://doi.org/10.1016/j.jeconbus.2017.05.002 DOI: https://doi.org/10.1016/j.jeconbus.2017.05.002
- Cuestas, J. C., & Harrison, B. (2010). Inflation persistence and nonlinearities in Central and Eastern European countries. Economics Letters, 106(2), 81–83. https://doi.org/10.1016/j.econlet.2009.10.006 DOI: https://doi.org/10.1016/j.econlet.2009.10.006
- Dastgerdi, H. G., & Yusof, Z. (2016). Does Inflation Targeting-Inflation Persistence Work Differently in Iran?. Journal of Economic & Management Perspectives, 10(4), 121-125.
- De Mendonça, H. F., & e Souza, G. J. D. G. (2012). Is inflation targeting a good remedy to control inflation?. Journal of Development economics, 98(2), 178-191. https://doi.org/10.1016/j.jdeveco.2011.06.011 DOI: https://doi.org/10.1016/j.jdeveco.2011.06.011
- Dias, D., & Marques, C. R. (2005). Using Mean Reversion as a Measure of Persistence. Economic Modelling,27(1). 262-273. https://doi.org/10.1016/j.econmod.2009.09.006 DOI: https://doi.org/10.1016/j.econmod.2009.09.006
- Eduardo, C., Gonçalves, S., & Salles, J. M. (2008). Inflation targeting in emerging economies : What do the data say ?.Journal of Development Economics, 85(1-2), 312–318. https://doi.org/10.1016/j.jdeveco.2006.07.002 DOI: https://doi.org/10.1016/j.jdeveco.2006.07.002
- Ellison, M., & Yates, T. (2007). Escaping Nash and volatile inflation. Bank of England Working Paper No. 330. https://doi.org/10.2139/ssrn.1009161 DOI: https://doi.org/10.2139/ssrn.1009161
- Fritzer, F. (2010). Administered Prices, Inflation and the Business Cycle – Selected Aspects. Monetary Policy & The Economics, Austrian Central Bank. Issue 1. 41–58.
- Fuhrer, J. C. (2011). Inflation Persistence. SSRN Electronic Journal. https://doi.org/10.2139/ssrn.1520513 DOI: https://doi.org/10.2139/ssrn.1520513
- Gamber, E. N., Smith, J. K., & Eftimoiu, R. (2015). Journal of Economics and Business The dynamic relationship between core and headline inflation. Journal of Economics and Business, 81, 38–53. https://doi.org/10.1016/j.jeconbus.2015.05.002 DOI: https://doi.org/10.1016/j.jeconbus.2015.05.002
- Geronikolaou, G., Spyromitros, E., & Tsintzos, P. (2019). Progressive taxation and human capital as determinants of inflation persistence. Economic Modelling, July. 88(3). 82-97 https://doi.org/10.1016/j.econmod.2019.09.011 DOI: https://doi.org/10.1016/j.econmod.2019.09.011
- Gerlach, S., & Tillmann, P. (2012). Inflation targeting and inflation persistence in Asia-Pacific. Journal of Asian Economics. https://doi.org/10.1016/j.asieco.2012.03.002 DOI: https://doi.org/10.1016/j.asieco.2012.03.002
- Gil-Alana, L. A. (2012). Inflation Forecasting In Angola : A Fractional Approach. Centro de Estudos sobre Africa e do Desemvolvimento (CEsA) Working Paper No. 103. 1–23.
- Gil-Alana, L. A., & Carcel, H. (2018). North American Journal of Economics and Finance A fractional cointegration var analysis of exchange rate dynamics. North American Journal of Economics and Finance, 51(1), 1–9. https://doi.org/10.1016/j.najef.2018.09.006 DOI: https://doi.org/10.1016/j.najef.2018.09.006
- Granville, B., & Zeng, N. (2019). Time variation in inflation persistence : New evidence from modelling US inflation.Economic Modelling. 81(November 2018), 30–39. https://doi.org/10.1016/j.econmod.2018.12.004 DOI: https://doi.org/10.1016/j.econmod.2018.12.004
- Hosking, J. R. M. (1981). Fractional differencing. Biometika Trust, 68(1), 165–176. https://doi.org/10.1093/biomet/68.1.165 DOI: https://doi.org/10.1093/biomet/68.1.165
- Jun Quan, L., Ramasamy, S., Rasiah, D., Yee Yen, Y., & Devi Pillay, S. (2019). Determinants Of Islamic Banking Performance: An Empirical Study In Malaysia (2007 To 2016). Humanities & Social Sciences Reviews, 7(6), 380-401. https://doi.org/10.18510/hssr.2019.7664 DOI: https://doi.org/10.18510/hssr.2019.7664
- Kanellopoulos, N. C., & Koutroulis, A. G. (2016). Non-linearities in euro area inflation persistence. 59, 116–123. https://doi.org/10.1016/j.econmod.2016.07.006 DOI: https://doi.org/10.1016/j.econmod.2016.07.006
- Krznar, I., & Kunovac, D. (2010). Impact of External Shocks on Domestic Inflation and GDP. The Croatian National Bank Working Paper No. 26.
- Marques, C. R. (2004). Inflation Persistence : Facts Or Artefacts ?.Banco De Portugal Working Paper No. 8.
- Meller, B., Nautz, D., (2012). Inflation Persistance in the euro area before and after the european monetary union. Economic Modelling, 24(4), 1170-1176. https://doi.org/10.1016/j.econmod.2012.03.016 DOI: https://doi.org/10.1016/j.econmod.2012.03.016
- Sultan, K., Rzgar Ahmed, R., Mohammad Ameen, F., & Singh, M. (2020). The Effect Of Macroeconomic & Bank Specific Factors On Banks Profitability: An Empirical Evidence From Banking Industry Of Pakistan. Humanities & Social Sciences Reviews, 8(3), 635-645. https://doi.org/10.18510/hssr.2020.8368 DOI: https://doi.org/10.18510/hssr.2020.8368
- Tillmann, P. (2012). Inflation Targeting, Aggregation, and Inflation Persistence : Evidence from Korean CPI Components. Seoul Journal of Economics. 25(3), 233-254.
- Tillmann, P. (2013). Inflation targeting and regional inflation persistence: Evidence from Korea. Pacific Economic Review, 18(2), 147-161. https://doi.org/10.1111/1468-0106.12016 DOI: https://doi.org/10.1111/1468-0106.12016
- Tule, M. K., Salisu, A. A., & Ebuh, G. U. (2019). A test for Inflation persistence in Nigeria using fractional integration & fractional cointegration techniques. Economic Modelling, 87(3). 225-237. https://doi.org/10.1016/j.econmod.2019.07.024 DOI: https://doi.org/10.1016/j.econmod.2019.07.024
- Vaona, A., & Ascari, G. (2012). Regional Inflation Persistence: Evidence from Italy. Regional Studies. https://doi.org/10.1080/00343404.2010.505913 DOI: https://doi.org/10.1080/00343404.2010.505913
- Warjiyo, P., Juhro, S. M., Warjiyo, P., & Juhro, S. M. (2019). Inflation Targeting Framework: Implementation in Indonesia. In Central Bank Policy: Theory and Practice. https://doi.org/10.1108/978-1-78973-751-620191013 DOI: https://doi.org/10.1108/978-1-78973-751-620191013
- Wu, J., & Wu, J. (2018). Does a flexible exchange rate regime increase inflation persistence ? Journal of International Money and Finance, 86, 244–263. https://doi.org/10.1016/j.jimonfin.2018.05.002 DOI: https://doi.org/10.1016/j.jimonfin.2018.05.002
- Zubaidi, A., Slesman, L., & Wohar, M. E. (2016). Inflation, inflation, uncertainty, and economic growth in emerging and developing countries : Panel data evidence. Economic Systems, 40(4), 638–657. https://doi.org/10.1016/j.ecosys.2016.02.009 DOI: https://doi.org/10.1016/j.ecosys.2016.02.009
References
Ackley, G. (1959). Administrated Prices and the Inflationary Process. The American Economic Review, 49(2), 419–430.
Alam, N. (2020). Do Oil Price Shock, And Other Macroeconomic Variables Affect The Stock Market: A Study Of The Saudi Stock Market. Humanities & Social Sciences Reviews, 8(3), 1234-1242. https://doi.org/10.18510/hssr.2020.83126 DOI: https://doi.org/10.18510/hssr.2020.83126
Arimurti, T., & Trisnanto, B. (2011). Persistence of Inflation in Jakarta and Its Implication on The Regional Inflation Control Policy. Bulletin of Monetary, Economics and Banking, 14(1), 5–30. https://doi.org/10.21098/bemp.v14i1.76 DOI: https://doi.org/10.21098/bemp.v14i1.76
Ayd, C., Esen, Ö., & Bayrak, M. (2016). Inflation and Economic Growth : A Dynamic Panel Threshold Analysis for Turkish Republics in Transition Process. Procedia - Social and Behavioral Sciences, 229, 196–205. https://doi.org/10.1016/j.sbspro.2016.07.129 DOI: https://doi.org/10.1016/j.sbspro.2016.07.129
Balcilar, M., Gupta, R., & Jooste, C. (2016). Analyzing South Africa's inflation persistence using an ARFIMA model with Markov-switching fractional differencing parameter. The Journal of Developing Areas, 50(1), 47-57. https://doi.org/10.1353/jda.2016.0004 DOI: https://doi.org/10.1353/jda.2016.0004
Ball, L. M., & Romer, D. (2003). Inflation and the Informativeness of Prices. Journal of Money, Credit, and Banking. https://doi.org/10.1353/mcb.2003.0008 DOI: https://doi.org/10.1353/mcb.2003.0008
Batini, N., & Nelson, E. (2001). Optimal horizons for inflation targeting. Journal of Economic Dynamics and Control, 25(6-7), 891–910. https://doi.org/10.1016/S0165-1889(00)00060-9 DOI: https://doi.org/10.1016/S0165-1889(00)00060-9
Bermingham, C. (2010). A critical assessment of existing estimates of US core inflation. Journal of Macroeconomics, 32(4), 993–1007. https://doi.org/10.1016/j.jmacro.2010.05.003 DOI: https://doi.org/10.1016/j.jmacro.2010.05.003
Bratsiotis, G. J., Madsen, J., Martin, C., Bratsiotis, G. J., Madsen, J., & Martin, C. (2016). Inflation Targeting and Inflation Persistence. Economic and Political Studies. 3(1). 3-17. (October). https://doi.org/10.1080/20954816.2015.11673835 DOI: https://doi.org/10.1080/20954816.2015.11673835
Canarella, G., & Miller, S. M. (2017a). Inflation Persistence Before and After Inflation Targeting : A Fractional Integration Approach. East Econ. J., 43, 78–103. https://doi.org/10.1057/eej.2015.36 DOI: https://doi.org/10.1057/eej.2015.36
Canarella, G., & Miller, S. M. (2017b). Inflation Targeting and Inflation Persistence : New Evidence from Fractional Integration and Cointegration. Journal of Economics and Business. 92(5), 45-62. https://doi.org/10.1016/j.jeconbus.2017.05.002 DOI: https://doi.org/10.1016/j.jeconbus.2017.05.002
Cuestas, J. C., & Harrison, B. (2010). Inflation persistence and nonlinearities in Central and Eastern European countries. Economics Letters, 106(2), 81–83. https://doi.org/10.1016/j.econlet.2009.10.006 DOI: https://doi.org/10.1016/j.econlet.2009.10.006
Dastgerdi, H. G., & Yusof, Z. (2016). Does Inflation Targeting-Inflation Persistence Work Differently in Iran?. Journal of Economic & Management Perspectives, 10(4), 121-125.
De Mendonça, H. F., & e Souza, G. J. D. G. (2012). Is inflation targeting a good remedy to control inflation?. Journal of Development economics, 98(2), 178-191. https://doi.org/10.1016/j.jdeveco.2011.06.011 DOI: https://doi.org/10.1016/j.jdeveco.2011.06.011
Dias, D., & Marques, C. R. (2005). Using Mean Reversion as a Measure of Persistence. Economic Modelling,27(1). 262-273. https://doi.org/10.1016/j.econmod.2009.09.006 DOI: https://doi.org/10.1016/j.econmod.2009.09.006
Eduardo, C., Gonçalves, S., & Salles, J. M. (2008). Inflation targeting in emerging economies : What do the data say ?.Journal of Development Economics, 85(1-2), 312–318. https://doi.org/10.1016/j.jdeveco.2006.07.002 DOI: https://doi.org/10.1016/j.jdeveco.2006.07.002
Ellison, M., & Yates, T. (2007). Escaping Nash and volatile inflation. Bank of England Working Paper No. 330. https://doi.org/10.2139/ssrn.1009161 DOI: https://doi.org/10.2139/ssrn.1009161
Fritzer, F. (2010). Administered Prices, Inflation and the Business Cycle – Selected Aspects. Monetary Policy & The Economics, Austrian Central Bank. Issue 1. 41–58.
Fuhrer, J. C. (2011). Inflation Persistence. SSRN Electronic Journal. https://doi.org/10.2139/ssrn.1520513 DOI: https://doi.org/10.2139/ssrn.1520513
Gamber, E. N., Smith, J. K., & Eftimoiu, R. (2015). Journal of Economics and Business The dynamic relationship between core and headline inflation. Journal of Economics and Business, 81, 38–53. https://doi.org/10.1016/j.jeconbus.2015.05.002 DOI: https://doi.org/10.1016/j.jeconbus.2015.05.002
Geronikolaou, G., Spyromitros, E., & Tsintzos, P. (2019). Progressive taxation and human capital as determinants of inflation persistence. Economic Modelling, July. 88(3). 82-97 https://doi.org/10.1016/j.econmod.2019.09.011 DOI: https://doi.org/10.1016/j.econmod.2019.09.011
Gerlach, S., & Tillmann, P. (2012). Inflation targeting and inflation persistence in Asia-Pacific. Journal of Asian Economics. https://doi.org/10.1016/j.asieco.2012.03.002 DOI: https://doi.org/10.1016/j.asieco.2012.03.002
Gil-Alana, L. A. (2012). Inflation Forecasting In Angola : A Fractional Approach. Centro de Estudos sobre Africa e do Desemvolvimento (CEsA) Working Paper No. 103. 1–23.
Gil-Alana, L. A., & Carcel, H. (2018). North American Journal of Economics and Finance A fractional cointegration var analysis of exchange rate dynamics. North American Journal of Economics and Finance, 51(1), 1–9. https://doi.org/10.1016/j.najef.2018.09.006 DOI: https://doi.org/10.1016/j.najef.2018.09.006
Granville, B., & Zeng, N. (2019). Time variation in inflation persistence : New evidence from modelling US inflation.Economic Modelling. 81(November 2018), 30–39. https://doi.org/10.1016/j.econmod.2018.12.004 DOI: https://doi.org/10.1016/j.econmod.2018.12.004
Hosking, J. R. M. (1981). Fractional differencing. Biometika Trust, 68(1), 165–176. https://doi.org/10.1093/biomet/68.1.165 DOI: https://doi.org/10.1093/biomet/68.1.165
Jun Quan, L., Ramasamy, S., Rasiah, D., Yee Yen, Y., & Devi Pillay, S. (2019). Determinants Of Islamic Banking Performance: An Empirical Study In Malaysia (2007 To 2016). Humanities & Social Sciences Reviews, 7(6), 380-401. https://doi.org/10.18510/hssr.2019.7664 DOI: https://doi.org/10.18510/hssr.2019.7664
Kanellopoulos, N. C., & Koutroulis, A. G. (2016). Non-linearities in euro area inflation persistence. 59, 116–123. https://doi.org/10.1016/j.econmod.2016.07.006 DOI: https://doi.org/10.1016/j.econmod.2016.07.006
Krznar, I., & Kunovac, D. (2010). Impact of External Shocks on Domestic Inflation and GDP. The Croatian National Bank Working Paper No. 26.
Marques, C. R. (2004). Inflation Persistence : Facts Or Artefacts ?.Banco De Portugal Working Paper No. 8.
Meller, B., Nautz, D., (2012). Inflation Persistance in the euro area before and after the european monetary union. Economic Modelling, 24(4), 1170-1176. https://doi.org/10.1016/j.econmod.2012.03.016 DOI: https://doi.org/10.1016/j.econmod.2012.03.016
Sultan, K., Rzgar Ahmed, R., Mohammad Ameen, F., & Singh, M. (2020). The Effect Of Macroeconomic & Bank Specific Factors On Banks Profitability: An Empirical Evidence From Banking Industry Of Pakistan. Humanities & Social Sciences Reviews, 8(3), 635-645. https://doi.org/10.18510/hssr.2020.8368 DOI: https://doi.org/10.18510/hssr.2020.8368
Tillmann, P. (2012). Inflation Targeting, Aggregation, and Inflation Persistence : Evidence from Korean CPI Components. Seoul Journal of Economics. 25(3), 233-254.
Tillmann, P. (2013). Inflation targeting and regional inflation persistence: Evidence from Korea. Pacific Economic Review, 18(2), 147-161. https://doi.org/10.1111/1468-0106.12016 DOI: https://doi.org/10.1111/1468-0106.12016
Tule, M. K., Salisu, A. A., & Ebuh, G. U. (2019). A test for Inflation persistence in Nigeria using fractional integration & fractional cointegration techniques. Economic Modelling, 87(3). 225-237. https://doi.org/10.1016/j.econmod.2019.07.024 DOI: https://doi.org/10.1016/j.econmod.2019.07.024
Vaona, A., & Ascari, G. (2012). Regional Inflation Persistence: Evidence from Italy. Regional Studies. https://doi.org/10.1080/00343404.2010.505913 DOI: https://doi.org/10.1080/00343404.2010.505913
Warjiyo, P., Juhro, S. M., Warjiyo, P., & Juhro, S. M. (2019). Inflation Targeting Framework: Implementation in Indonesia. In Central Bank Policy: Theory and Practice. https://doi.org/10.1108/978-1-78973-751-620191013 DOI: https://doi.org/10.1108/978-1-78973-751-620191013
Wu, J., & Wu, J. (2018). Does a flexible exchange rate regime increase inflation persistence ? Journal of International Money and Finance, 86, 244–263. https://doi.org/10.1016/j.jimonfin.2018.05.002 DOI: https://doi.org/10.1016/j.jimonfin.2018.05.002
Zubaidi, A., Slesman, L., & Wohar, M. E. (2016). Inflation, inflation, uncertainty, and economic growth in emerging and developing countries : Panel data evidence. Economic Systems, 40(4), 638–657. https://doi.org/10.1016/j.ecosys.2016.02.009 DOI: https://doi.org/10.1016/j.ecosys.2016.02.009