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Asymmetric Effects of World Energy Prices on Inflation in Indonesia

Author

Listed:
  • Arintoko Arintoko

    (Department of Economics and Development Studies, Faculty of Economics and Business, Universitas Jenderal Soedirman, Purwokerto, Indonesia,)

  • Lilis Siti Badriah

    (Department of Economics and Development Studies, Faculty of Economics and Business, Universitas Jenderal Soedirman, Purwokerto, Indonesia,)

  • Dijan Rahajuni

    (Department of Economics and Development Studies, Faculty of Economics and Business, Universitas Jenderal Soedirman, Purwokerto, Indonesia,)

  • Nunik Kadarwati

    (Department of Economics and Development Studies, Faculty of Economics and Business, Universitas Jenderal Soedirman, Purwokerto, Indonesia,)

  • Rakhmat Priyono

    (Department of Economics and Development Studies, Faculty of Economics and Business, Universitas Jenderal Soedirman, Purwokerto, Indonesia,)

  • Muhammad Amin Hasan

    (KIET University, Pakistan.)

Abstract

This study analyzes the asymmetric effect of changes in world energy prices, which include crude oil, natural gas, and coal prices, and the exchange rate on consumer price index (CPI) inflation in Indonesia. The models used in the analysis are quantile regression and dynamic ordinary least squares. The period studied is monthly in the period 2001M01 - 2022M12. The study results show that world crude oil prices have asymmetrically positive effects on CPI inflation when world oil prices increase and decrease. The fall in the price of crude oil has a more significant effect than the increase. The asymmetric impact of world crude oil prices on CPI inflation was also found between lower and middle quantiles. However, the short-run impact of rising crude oil prices is only found in the 7th quartile. So, the long-run effect is more dominant than the short-run effect. The role of the fuel subsidy policy, which the government manages, is beneficial in reducing inflationary fluctuations originating from fluctuations in world crude oil prices. Efforts to develop oil refineries in Indonesia that need to be done to reduce imports of crude oil and fuel are expected to be able to reduce the impact of world oil price fluctuations on domestic inflation in the future.

Suggested Citation

  • Arintoko Arintoko & Lilis Siti Badriah & Dijan Rahajuni & Nunik Kadarwati & Rakhmat Priyono & Muhammad Amin Hasan, 2023. "Asymmetric Effects of World Energy Prices on Inflation in Indonesia," International Journal of Energy Economics and Policy, Econjournals, vol. 13(6), pages 185-193, November.
    • Handle: RePEc:eco:journ2:2023-06-20
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    References listed on IDEAS

    as
    1. Umar Bala & Lee Chin, 2018. "Asymmetric Impacts of Oil Price on Inflation: An Empirical Study of African OPEC Member Countries," Energies, MDPI, vol. 11(11), pages 1-21, November.
    2. Umar Tijjani Babuga & Niaz Ahmad Mohd Naseem, 2021. "Asymmetric Effect of Oil Price Change on Inflation: Evidence from Sub Saharan Africa Countries," International Journal of Energy Economics and Policy, Econjournals, vol. 11(1), pages 448-458.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    asymmetric effect; CPI inflation; quantile regression; world crude oil prices; fuel subsidy policy;
    All these keywords.

    JEL classification:

    • C21 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Cross-Sectional Models; Spatial Models; Treatment Effect Models
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • Q41 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Demand and Supply; Prices

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