KREDIBILITAS BANK SENTRAL DAN PERSISTENSI INFLASI DI INDONESIA

Abstract

The relationship between the credibility of the central bank and the persistence of inflation is still ambigous as this information is crucial in setting the appropriate policy for combating an inflation problem. The objective of this paper is to measure the rate of inflation persistence and to examine the importance of the credibility of the bank central on the persistence of inflation in Indonesia by using the New Keynesian Phillips Curve Hybrid. It is found that the persistence of inflation in the period of full - fledged Inflation Targeting (2006:1-2012:3) lower when compared with the period of Inflation Targeting Lite (2000:1-2005:4). Meanwhile, the credibility of the central bank is significantly influencing the persistence of inflation only when Indonesia was implementing the Full-Fledged Inflation Targeting. When Indonesia was applying the Inflation Targeting Lite, the impact of bank central credibility on persitence inflation was not significant. These findings indicate that the behavior of inflation in Indonesia was backward looking during the periode of Inflation Targeting Lite and becoming forwardlooking after adopting the Full-Fledged Inflation Targeting Policy. This change is related to the increased credibility of the central bank in the full - fledged Inflation Targeting period.