Abstract
This study aims to estimate (the possibility) the inflation convergence among regionals in Indonesia and also analyze the determinant/source factor of the regional inflation. The population of this study consists of 31 provinces by using secondary data of the 2008-2017 period. Consumer Price Index becomes the dependent variable while Gross Regional Domestic Product, Provincial Minimum Wage, credit and Open Unemployment Level become the independent variable. This research uses panel data analysis and Fixed Effect Model regression estimation approach. The result showed that inflation convergence happened among regionals in Indonesia that can be seen through the X1 variable coefficient value of -0.635457 since the value of β < 0. While for the convergence speed calculation, the measurement result showed that the duration needed by the inflation to return to the initial balance or its natural value is 68 months. The study result also showed that Gross Regional Domestic Product, Provincial Minimum Wage, credit and Open Unemployment Level have significant influence on the Indonesia’s regional Inflation in 2008-2017.
Highlights
Inflation is a phenomenon in economy which becomes the discussion topic related to its broad impact on the macro economy aggregate
The UMP coefficient value was 20.09, which means every increase on Provincial Minimum Wage (UMP) by 1% will increase 20.09% regional inflation in Indonesia
Speed of convergence 68 months that indicates the length of time needed by inflation to return to its initial balance or natural value
Summary
Inflation is a phenomenon in economy which becomes the discussion topic related to its broad impact on the macro economy aggregate. Inflation becomes the main focus of the monetary authority due to its influence on macroeconomic variables such as national output and unemployment (Utama, Wijaya, & Lim, 2017). Bank Indonesia as the monetary authority has defined the final goal that is to achieve and maintain the stability of rupiah value on the goods and service price, which is reflected through inflation (internal stability and external stability). Maintaining inflation within the tolerable level is the aim of domestic price stability, but often becomes the requirement to consider by the monetary policy makers (Alagidede, Coleman, & Adu, 2014). The rupiah stability can be reflected through the relative goods and service price stability. Since 2005 Bank Indonesia has been implementing a monetary policy framework which uses inflation as the main target of the monetary policy or known as Inflation Targeting Framework (ITF)
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