A Model of the Dynamics of the Effect of World Crude Oil Price and World Rice Price on Indonesia’s Inflation Rate

Pasrun AdamUsman RianseLa Ode Muh. HarafahEdi CahyonoM. Rafiy

DOI 10.7160/aol.2016.080101
No 1/2016, March
pp. 3-12

Adam, P., Rianse, U., Harafah, L. M., Cahyono, E. and Rafiy, M. (2016) “A Model of the Dynamics of the Effect of World Crude Oil Price and World Rice Price on Indonesia’s Inflation Rate”, AGRIS on-line Papers in Economics and Informatics, Vol. 8, No. 1, pp. 3 - 12. ISSN 1804-1930. DOI 10.7160/aol.2016.080101.

Abstract

This study aims to investigate the dynamics of the effects of world crude oil prices and world rice prices on Indonesia’s inflation rate in the period between January 2004 and September 2015. Monthly time series data spanning from January 2004 to September 2015 are analyzed using difference equation model as the econometric tool. Test result shows that there existed a dynamic effect of world oil crude prices and world rice prices on inflation rate in Indonesia. The World crude oil prices positively affected the inflation rate in that each 1% increase (decrease) in the world crude oil prices caused the inflation rate to go up (drop) by 0.33%. The world rice prices also positively affected the inflation rate, where each 1% increase (decrease) in world rice prices was followed by a 0.52% rise (fall) of the inflation rate.

Keywords

Crude oil prices, rice prices, inflation rate, difference equation model.

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