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Inflation and Spatial Spillovers in a Large Archipelago: Evidence from Indonesia

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  • Harry Aginta

Abstract

This study examines inflation dynamics in Indonesia, a large archipelagic country, using the Phillips curve specification. Utilising province‐level data from 2015 to 2019, the analysis accounts for regional interaction across Indonesian provinces and estimates spatial spillovers. To address the challenges of applying spatial methods to the world's largest archipelagic nation, two new approaches for the spatial weight matrix criteria are introduced: contiguity‐based from artificial boundaries (Thiessen polygons) and trade‐based from the Interregional Input–Output Tables. Furthermore, exploiting a new dataset, the study contrasts alternative measurements of inflation and output gap. These distinctions yield new findings. The results indicate the presence of a conventional Phillips curve in Indonesia. Different measures of inflation and the output gap have distinct spatial spillover effects.

Suggested Citation

  • Harry Aginta, 2024. "Inflation and Spatial Spillovers in a Large Archipelago: Evidence from Indonesia," Economic Papers, The Economic Society of Australia, vol. 43(1), pages 91-103, March.
    • Handle: RePEc:bla:econpa:v:43:y:2024:i:1:p:91-103
    DOI: 10.1111/1759-3441.12381
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