Base Money and Exchange Rate: Sources of Inflation in Indonesia during the Post-1997 Financial Crisis: CIES Discussion Paper 0221

Reza Siregar, Gulasekaran Rajaguru

Research output: Working paperDiscussion paperResearch

Abstract

The magnitude of the rise in inflation rate in Indonesia during the height of the 1997
financial crisis was among the sharpest that the East Asian economies has ever
witnessed in the recent decades. This paper empirically tests the monetary hypotheses
of inflation and compares and contrasts the sources of price changes during the pre- and
post-1997 financial crisis. We find a high explanatory power of the monetary model for
the post-crisis period, but not for the pre-crisis. The high volatilities of the local currency
and the unprecedented rapid growth rate of base money during the post-crisis are found
to be the two key monetary determinants of the inflation in the country.
Original languageEnglish
Place of PublicationAdelaide
PublisherCentre for International Economic Studies
Number of pages44
Publication statusPublished - Aug 2002
Externally publishedYes

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