The Influence of Domestic Economic Factors on Inflation in Indonesia

Abstract

Inflation is a monetary and structural phenomenon in the Indonesian economy. The objective of this research is to analyse the indirect effect of Debt, Net Export and Interest Rate on the Inflation through Exchange Rate : and to analyse the direct effects of Debt, Net export, Interest Rate, and exchange rate on the inflation in Indonesia. The research uses secondary data carried out from Bank Indonesia. Statistics Center Board, DJPPR ( Directorate General of Financing and Risk Management) of the ministry of finance and from the Ministry of Trade. Quarterly data of 1995 – 2020 are employed as the data and analysed with path analysis technique. Inderect result shows that there is positive and significant effect of debt on inflation through exchange rate, there is positive and significant effect of net export on inflation through exchange rate, and there is positive and insignificant effect of interest rate on inflation throught exchange rate. Direct result shows that there is negative and insignificant effect of debt on inflation, there is negative and insignificant effect of net export on inflation, there is positive and significant effect of interest rate on inflation, and there is positive and significant effect of exchange rate on inflation. Keywords: Debt, Net Exports, Interest Rates, Exchange Rates, Inflation.