SIMULTANEOUS ANALYSIS OF INFLATION AND MONEY SUPPLY IN INDONESIA
DOI:
https://doi.org/10.23969/trikonomika.v25i1.42100Keywords:
inflation, money supply, interest rate, fuel prices, government expenditureAbstract
This study investigates the structural relationship between inflation and money supply in Indonesia using a simultaneous equations framework. Specifically, it examines how money supply, interest rates, fuel prices, and government expenditure affect inflation, and how inflation, interest rates, exchange rates, and household consumption affect money supply. Using annual data (1993–2024), a two-stage least squares (2SLS) model was applied. Results show inflation is jointly influenced by all tested variables, though only money supply and interest rates exert significant partial effects. Similarly, money supply is simultaneously affected by its four variables, but only inflation remains partially significant. These findings confirm a bidirectional relationship between inflation and money supply, supporting that monetary expansion drives inflationary pressures. The study highlights the value of simultaneous equation modeling for understanding macroeconomic interdependence and guiding reliable policy formulation.
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