The Impact of Monetary Policy on Macroeconomic Stability in Indonesia: an Analysis of Inflation, Interest Rates, and Economic Growth

Abstract

This research analyzes the impact of monetary policy on macroeconomic stability in Indonesia, focusing on inflation, interest rates, and economic growth. The study uses secondary data from the Central Bureau of Statistics (BPS). Model selection estimation testing indicates that the Fixed Effect Model (FEM) is the most appropriate approach, and panel data regression analysis is applied. The results show that the money supply does not significantly affect economic growth, indicating that growth is more strongly influenced by structural and non-monetary factors such as productivity, institutions, and fiscal policy. Interest rates are also found to have no significant impact on economic growth. This may reflect the low responsiveness of the real sector to interest rate changes, particularly when economic actors prioritize non-monetary factors, including political stability, business regulations, and market demand. Limited access to banking services for communities and MSMEs further weakens monetary policy transmission. Meanwhile, inflation has a significant effect on economic growth in Indonesia. However, high and uncontrolled inflation can reduce purchasing power and weaken long-term economic stability. This research can make a positive contribution to addressing economic growth issues in Indonesia and promoting sustainable development.