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Inflation Targeting In Indonesia: Searching For A Threshold

Author

Listed:
  • ANIS CHOWDHURY

    (School of Economics & Finance University of Western Sydney, Australia)

  • ROGER HAM

    (School of Economics & Finance University of Western Sydney, Australia)

Abstract

It could be argued that for some developing countries, low to moderate inflation is beneficially related to economic growth and that it is only after a certain threshold level that inflation becomes deleterious to growth. This has implications for macroeconomic policy requirements placed on developing countries by international loan bodies. This paper, using data from Indonesia, examines the relationship between growth and inflation. Particularly, a threshold VAR model is used to test for changes in the relationship between inflation and growth. The results so far are exploratory and limited by a small data sample. The results are consistent with a threshold level between 8.5% and 11% producing structural shifts in the relationship between inflation and growth.

Suggested Citation

  • Anis Chowdhury & Roger Ham, 2009. "Inflation Targeting In Indonesia: Searching For A Threshold," The Singapore Economic Review (SER), World Scientific Publishing Co. Pte. Ltd., vol. 54(04), pages 645-655.
    • Handle: RePEc:wsi:serxxx:v:54:y:2009:i:04:n:s021759080900346x
    DOI: 10.1142/S021759080900346X
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    References listed on IDEAS

    as
    1. By Mohsin S. Khan & Abdelhak S. Senhadji, 2001. "Threshold Effects in the Relationship Between Inflation and Growth," IMF Staff Papers, Palgrave Macmillan, vol. 48(1), pages 1-1.
    2. Easterly, William, 2005. "National Policies and Economic Growth: A Reappraisal," Handbook of Economic Growth, in: Philippe Aghion & Steven Durlauf (ed.), Handbook of Economic Growth, edition 1, volume 1, chapter 15, pages 1015-1059, Elsevier.
    3. Michael Sarel, 1996. "Nonlinear Effects of Inflation on Economic Growth," IMF Staff Papers, Palgrave Macmillan, vol. 43(1), pages 199-215, March.
    Full references (including those not matched with items on IDEAS)

    Citations

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    Cited by:

    1. Ambar Galih & Sugiharso Safuan, 2017. "On Nonlinear Relationship between Inflation and Economic Growth: A Study of ASEAN-5 Countries Period 2000–2016," Economics and Finance in Indonesia, Faculty of Economics and Business, University of Indonesia, vol. 63, pages 1-12, June.
    2. Adam Luthfi Kusumatrisna & Iman Sugema & Syamsul H. Pasaribu, 2022. "Threshold Effect In The Relationship Between Inflation Rate And Economic Growth In Indonesia," Bulletin of Monetary Economics and Banking, Bank Indonesia, vol. 25(1), pages 117-132, June.
    3. Junankar, Pramod N. (Raja), 2019. "Monetary Policy, Growth and Employment in Developing Areas: A Review of the Literature," IZA Discussion Papers 12197, Institute of Labor Economics (IZA).

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    More about this item

    Keywords

    Inflation targeting; Growth; Threshold VAR; E52; E63; E64;
    All these keywords.

    JEL classification:

    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E63 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Comparative or Joint Analysis of Fiscal and Monetary Policy; Stabilization; Treasury Policy
    • E64 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Incomes Policy; Price Policy

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