Fadly, Chanif Fadly (2026) ANALYSIS OF THE EFFECTS OF THE RUPIAH EXCHANGE RATE, INTEREST RATES, AND THE FEDERAL FUNDS RATE ON INFLATION IN INDONESIA. Undergraduate thesis, UPN Veteran Jawa Timur.
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Abstract
This study analyzes the effect of the rupiah exchange rate, the Bank Indonesia (BI) Rate, and the U.S. Federal Funds Rate (FFR) on inflation in Indonesia during the 2020 2025 period, a span marked by considerable domestic and global economic turbulence. Using monthly secondary time-series data obtained from Bank Indonesia, the Federal Reserve, and the Central Statistics Agency (BPS), the data were analyzed with the Vector Error Correction Model (VECM), complemented by the Impulse Response Function (IRF) and Forecast Error Variance Decomposition (FEVD) to capture both short-run and long-run dynamics among the variables. The results show that the rupiah exchange rate has a significant effect on inflation in both the short run and the long run, as depreciation raises the prices of imported goods and domestic production costs; the BI Rate exerts a significant influence only in the long run, reflecting the time lag inherent in the monetary transmission mechanism; and the Federal Funds Rate has no significant direct effect on inflation but operates indirectly through movements in the rupiah exchange rate. The negative and significant Error Correction Term confirms an adjustment mechanism that returns inflation toward its long-run equilibrium following economic shocks. These findings underscore the importance of exchange rate stabilization, more proactive interest rate policy, and stronger coordination between the government and monetary authority in maintaining price stability amid global uncertainty.
| Item Type: | Thesis (Undergraduate) | ||||||||
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| Subjects: | H Social Sciences > HB Economic Theory H Social Sciences > HC Economics |
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| Divisions: | Faculty of Economic and Business > Departement of Economics | ||||||||
| Depositing User: | Chanif Chanif Fadly Fadly | ||||||||
| Date Deposited: | 24 Jul 2026 03:17 | ||||||||
| Last Modified: | 09 Sep 2026 06:36 | ||||||||
| URI: | https://repository.upnjatim.ac.id/id/eprint/55508 |
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