Analysis Responses of Exchange Rates, Interest Rates and Money Supply against Shock of Inflation before and After ITF Policies in Indonesia

ABSTRACT : This study aims to analyze how the response of the exchange rate, interest rate and money supply due to shocks that occurred in inflation in the period before and after the implementation of the ITF policy in Indonesia. The data used are time series from 1994Q1-2018Q4. The data analysis method used structural vector autoregression (SVAR) model analysis tool by including retrictions. The results of the study conclude that in the period before the implementation of the ITF using the Impulse Response Function test (IRF), which illustrates that at the beginning of the shock period caused by inflation, it was responded positively by the exchange rate, interest rate and money supply variables. In the Forecast Error Variance Decomposition test(FEVD), it is also seen that the contribution of the inflation variable variant is also very large to the variable variance of the exchange rate, interest rate and money supply. In the period after the implementation of the ITF, only the money supply variable at the beginning of the period responded negatively due to changes in inflation. In the Forecast Error Variance Decomposition test (FEVD), it can be seen that the contribution of variance is dominated by the variable it self.
KEYWORDS -Inflation Targeting Framework, SVAR, Inflation Shock, Exchange Rate, Interest Rate, Money
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