How do the Causality of Inflation and Government Expenditure in Indonesia?

International Journal of Economics and Management Studies

© 2020 by SSRG - IJEMS Journal

Volume 7 Issue 5

Year of Publication : 2020

Authors : Dewi Mahrani Rangkuty, Lia Nazliana Nasution, Keri Patmawati

10.14445/23939125/IJEMS-V7I5P105

How to Cite?

Dewi Mahrani Rangkuty, Lia Nazliana Nasution, Keri Patmawati, "How do the Causality of Inflation and Government Expenditure in Indonesia?," SSRG International Journal of Economics and Management Studies, vol. 7,  no. 5, pp. 27-34, 2020. Crossref, https://doi.org/10.14445/23939125/IJEMS-V7I5P105

Abstract:

This research aims to analyze the causality and cointegration relationship between inflation and government expenditure in Indonesia. By using time-series data from 1998-2017 sourced from Bank Indonesia, the used method Granger Causality test. And the results showed that government expenditure and inflation were stationary on the 1st difference. A balanced relationship occurs in the long term. And between inflation and government expenditure, only a one-way causality relationship occurs. Government spending affects inflation but not vice versa. High country spending will result in money falling into the market in many quantities. This will interfere with the stability of the price of goods and services in the market, and this is what characterizes the rate of inflation in Indonesia during the research period. It is expected that the government to maintain price stability by suppressing the inflation rate as an effort to implement state expenditure only on the productivity of output to sustainable development.

Keywords:

Exchange rate, GDP, Government expenditure, Inflation, Interest rate, Investment.

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