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Relationship of Inflation, BI Rate and Deposit Interest Rate

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  • Indrajaya, Danang

Abstract

This study aims to model the relationship between the inflation rate, BI rate, and deposit interest rates, then analyze the model, and provide forecasting and structural analysis of the model. Therefore, the method used in this study is Vector Error Correction Model analysis which is applied to time series data of the inflation rate (CPI), BI rate, and deposit interest rates. The results of the model analysis show that the policy of changing the BI rate has an effect on the rise and fall of the inflation rate (CPI) and fluctuations in the deposit rate (deprate). The BI rate is also influenced by two other variables (CPI and Deprate), but the biggest influence is from the variable BI Rate itself, and CPI and Deprate are mutually influencing (causality effect), but like the BI rate, the most influential variable is the lag variable of each of these variables

Suggested Citation

  • Indrajaya, Danang, 2021. "Relationship of Inflation, BI Rate and Deposit Interest Rate," MPRA Paper 129927, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:129927
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    References listed on IDEAS

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    1. Stanley Fischer & Franco Modigliani, 1978. "Towards an understanding of the real effects and costs of inflation," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 114(4), pages 810-833, December.
    2. John B. Taylor, 1995. "The Monetary Transmission Mechanism: An Empirical Framework," Journal of Economic Perspectives, American Economic Association, vol. 9(4), pages 11-26, Fall.
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    Keywords

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    JEL classification:

    • E00 - Macroeconomics and Monetary Economics - - General - - - General
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy

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