Estimation Threshold Inflation in Indonesia
Estimation Threshold Inflation in Indonesia

Summary/Abstract: The purpose of this paper is to re- examination about relationship between inflation and economic growth in Indonesia. This paper is based on annual panel- data set including 30 provinces in Indonesia for period 2011- 2015. The results of this study indicate that there is a non- linear relationship between inflation and economic growth because there is a structural break point in that relationship. PCSE SUR is used to analyze threshold inflation level in Indonesia. Inflation rate which under the threshold of 4.64% is still a positive influence on economic growth. Meanwhile, the inflation rate above the inflation threshold, will be a negative influence. This result as same as result with using white cross- section coefficient covariance robust with cross- section weight, just different at standard error. Inflation targeting which monetary policy by Bank of Indonesia is below threshold inflation since 2012. This policy is good news for keep economic growth positively increase but Indonesia must take fast decision for monetary policy if inflation is above threshold inflation level.

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