INFLATION TARGETING IN INDONESIA: SEARCHING FOR A THRESHOLD

Anis Chowdhury · Roger Ham

18 citations0/0 files storedThe Singapore Economic Review

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Monetary Policy and Economic Impact Economic Growth and Productivity Unemployment and Economic Growth

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.

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References

1996Inference When a Nuisance Parameter Is Not Identified Under the Null Hypothesis 1997The Review of Economics and Statistics 1998Inflation crises and long-run growth 2002Modern Hyper- and High Inflations 1993Moderate Inflation 2006A sequential procedure for determining the number of regimes in a threshold autoregressive model 2004Inflation‐Growth Profiles Across Countries: Evidence from Developing and Developed Countries 2001TOWARDS IMPLEMENTATION OF INFLATION TARGETING IN INDONESIA

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2013Should Developing Countries Target Low, Single-Digit Inflation to Promote Growth and Employment?2021The Influence of Global Financial Liquidity on the Indonesian Economy: Dynamic Analysis with Threshold VAR

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