THE EFFECT OF CRUDE OIL PRICES ON INFLATION, INTEREST RATES AND ECONOMIC GROWTH IN INDONESIA

Rostin Rostin,Muh Nur,La Ode Suriadi,Jamal Nasir Baso,Pasrun Adam,Abd Azis Muthalib,Zainudin Saenong

doi:10.32479/ijeep.7829

Abstract

This study aims to examine the effect of crude oil prices on inflation, interest rates, and economic growth in Indonesia. The data used are quarterly time series data on crude oil, interest rates, inflation, and Indonesia's economic growth from the first quarter of year 2001 to the second quarter of year 2017. To test the effect, an autoregressive distributed lag (ARDL) equations system or a multivariate ARDL model is used. The results of data analysis reveal that (1) there are no long-run and short-run effects of crude oil prices on inflation, (2) there are long-run and short-run effects of crude oil prices to the interest rate. In the long run, every 1% increase in the price of crude oil, the interest rate drops 0,26%, and (3) there is no effect of crude oil prices on economic growth both in the short and long-run. Keywords : crude oil prices, interest rate, inflation, economic growth, ARDL model. JEL Classifications: E300, E310, E42, O440 DOI: https://doi.org/10.32479/ijeep.7829

Highlights

Crude oil is a commodity that has quite high strategic value in the economy of a country
Because there are three dependent variables comprising inflation, interest rates, and economic growth, and there is one independent variable, namely the price of crude oil, to check the effect, the multivariate autoregressive distributed lag (ARDL) model was used which consists of three equations is used as follows: p1
The 4 time series of inflation, interest rates, economic growth, and crude oil price oil prices are stasionary at first difference or integrated of order one, I (1)

Summary

Introduction

Crude oil is a commodity that has quite high strategic value in the economy of a country. A rise in crude oil prices can directly affect a rise in prices which will affect inflation, interest rates, and economic growth. The rise in crude oil prices affects inflation through production cost increase. The crude oil prices rise can affect the interest rate through a rise in consumption expenditure due to the increased prices in general. Besides having a high strategic value in the economy, crude oil is a major commodity in derivative trade, namely as a reference asset (underfying assets). For this reason, changes in crude oil prices can affect all economic activities (Nazarian and Amiri, 2014; Adam, 2016)

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