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The Impact of U.S. and China Economic Policy Uncertainty on the Indonesian Stock Market: An Empirical Study on the JKSE with Inflation and Interest Rates as Control Variables

In: Proceedings of the International Conference on Applied Science and Technology on Social Science 2025 (iCAST-SS 2025)

Author

Listed:
  • Angga Hergastyasmawan

    (State Polytechnic of Samarinda, Department of Finance and Banking)

  • Fitri Wulandari

    (State Polytechnic of Samarinda, Department of Finance and Banking)

  • Muhammad Khozin Ahyar

    (State Polytechnic of Samarinda, Department of Finance and Banking)

  • Ellen DOktanti Irianto

    (Mulawarman University, Department of Economics and Business)

  • Ghina Salsabila

    (State Polytechnic of Samarinda, Department of Finance and Banking)

  • Uni Sakila

    (State Polytechnic of Samarinda, Department of Finance and Banking)

Abstract

Global economic policy uncertainty, particularly from the United States and China, can influence the stability of stock markets in emerging economies such as Indonesia. This study aims to analyze the effect of Economic Policy Uncertainty (EPU) from the U.S. and China on fluctuations in the Indonesia Composite Index (JKSE), while considering inflation and interest rates as control variables. The research utilizes annual time series secondary data from 2006 to May 2025, sourced from the official websites of IDX, Bank Indonesia, Statistics Indonesia (BPS), and policyuncertainty.com. The analytical method employed is the Vector Error Correction Model (VECM). The results show that in the long term, EPU US and interest rates have a significant positive effect on the JKSE, while EPU China and inflation have a significant negative effect. In the short term, only EPU China has a significant impact on the JKSE. The Granger causality test reveals a bidirectional relationship between EPU China and JKSE, and a unidirectional relationship from JKSE to EPU US. This study contributes to a deeper understanding of the relationship between global economic policy uncertainty and domestic stock market dynamics, and offers recommendations for investors and policymakers to consider both global and domestic factors in decision-making.

Suggested Citation

  • Angga Hergastyasmawan & Fitri Wulandari & Muhammad Khozin Ahyar & Ellen DOktanti Irianto & Ghina Salsabila & Uni Sakila, 2025. "The Impact of U.S. and China Economic Policy Uncertainty on the Indonesian Stock Market: An Empirical Study on the JKSE with Inflation and Interest Rates as Control Variables," Advances in Economics, Business and Management Research, in: Muhammad Udin Harun Al Rasyid & Nurul Fahmi & Yuliana Sukarmawati & I Wayan Sutina & Upayana Wiguna (ed.), Proceedings of the International Conference on Applied Science and Technology on Social Science 2025 (iCAST-SS 2025), pages 257-264, Springer.
    • Handle: RePEc:spr:advbcp:978-94-6463-938-4_31
    DOI: 10.2991/978-94-6463-938-4_31
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