How Is the Effect of Inflation to Interest Rate, Exchange Rate and Indonesia Composite Index?

Temy Setiawan ,Hary S Sundoro

doi:10.7176/rjfa/10-10-08

Abstract

This study seeks to test the macroeconomy on the Composite Stock Price Index (CSPI). The modeling of this study uses several macroeconomic related factors, which includes inflation, interest rates, and exchange rates.This research was conducted in Indonesia in the observation period 2014 to 2017 (48 observation data). The data used are secondary data collected through the internet. The data are processed using PLS with path analysis. The results of the study show that only inflation has an effect on interest rates and exchange rates against the CSPI. This shows that amongst the government policies which control the macroeconomy, only the exchange rates affect the CSPI.The novelty of this study is that researches on the testing of the form of mediation for inflation, interest rate and exchange rates for the JCI are still limited, so this one can be used as a reference in testing mediation effects. Keywords : inflation, interest rates, exchange rates and CSPI DOI : 10.7176/RJFA/10-10-08 Publication date :May 31 st 2019

Highlights

The development of today's business world with the support of technological advancements has led to rapid investment growth (Arifin, 2014; Mankiw, 2015; Miseman,et al, 2013)
One factor which becomes a measure of changes in composite stock price index (CSPI) is a country's macroeconomic conditions such as inflation, interest rates and exchange rates (Mankiw, 2009; Bai, 2014; Wijayanti and Sudarmiani, 2017;Taufiq and Kefi, 2010; Tafa, 2015)
This study provides empirical evidence of currency exchange rates measured by the exchange rates of the rupiah against the US dollar which will affect the CSPI

Summary

Introduction

The development of today's business world with the support of technological advancements has led to rapid investment growth (Arifin, 2014; Mankiw, 2015; Miseman,et al, 2013). Lo (2016) explains that one of the measures used in assessing capital market reactions is taking into account the value of the composite stock price index (CSPI). The fast and unstable CSPI volatility is an indicator of the reaction of unfavorable economic conditions for a country. The economic condition of a country will be an investment consideration for investors (Arifin, 2014; Abdurehman and Hacilar, 2016; Ayub, et al, 2014). One factor which becomes a measure of changes in CSPI is a country's macroeconomic conditions such as inflation, interest rates and exchange rates (Mankiw, 2009; Bai, 2014; Wijayanti and Sudarmiani, 2017;Taufiq and Kefi, 2010; Tafa, 2015). This research is important to see whether government policies on macroeconomic conditions have an impact on the CSPI, especially in the midst of current Indonesian politics which will hold legislative and executive elections in April 2019 for the 5 years of leadership

Methods

Results

Conclusion