Impact of Monetary Policy and Fiscal Policy on Gross Domestic Product in Indonesia

Abstract

This study aims to determine which policies are effectively implemented between monetary policy and fiscal policy for Indonesia's gross domestic product. The data used is the annual Secondary time series data from 1990-2020. Research variables are estimated using a quantitative approach that is two Stage Least Square (TSLS) model. Policy is said to be more effective if the policy is able to affect the increase in gross domestic product higher than other policies. The ability of the policy to influence the increase in gross domestic product is indicated by the magnitude of the variable significance value of the policy. The results showed that the monetary policy represented by the variable amount of money in circulation amounted to 0.00 and fiscal policy represented by the variable government spending amounted to 0.07. So it can be concluded that monetary policy will be more effective in affecting gross domestic product compared to fiscal policy. Based on the values obtained, then confirm the findings of the Mundell-Fleming theory which states that a small open economy with a floating exchange rate system is more effective using monetary policy than fiscal policy. Keywords: Monetary Policy, Fiscal Policy, Two Stage Least Squares, Gross Domestic Product, Mundell Fleming.