Indonesia’s Rupiah Redenomination Prospects: Forecasting  Inflation Stability and Economic Readiness over 2015-2024

Kartika Flamboyan Jingga

doi:10.63922/ijebir.v5i04.5113

Kartika Flamboyan Jingga Universitas Pembangunan Nasional “Veteran” Jawa Timur, Surabaya, Indonesia

DOI: https://doi.org/10.63922/ijebir.v5i04.5113

Keywords: Rupiah redenomination, Macroeconomic stability, Inflation expectations

Abstract

Currency redenomination is frequently proposed as a means of simplifying transactions and reinforcing confidence in the national currency. However, international experience indicates that such reforms require strong macroeconomic foundations to avoid temporary inflationary disruptions. This study investigates Indonesia’s readiness to implement Rupiah redenomination by examining the response of inflation to a broad set of domestic and external determinants. Using quarterly data for 2015 to 2024 obtained from Bank Indonesia, BPS-Statistics Indonesia, and the World Bank, the analysis estimates inflation against exchange rate volatility across eleven currencies, fiscal performance, export and import activity, and the Political Index. The empirical framework applies the ARDL bounds testing approach with HAC standard errors to identify both short-run and long-run relationships. The findings suggest that Indonesia is not yet prepared for redenomination. Exchange rate pass-through and fiscal expansion exert significant inflationary effects in the short run, while the Political Index signals weak institutional stability and limited long-run credibility.

References

Alesina, Alberto, and Allan Drazen. 1991. “Why Are Stabilizations Delayed?” American Economic Review 81, no. 5: 1170-1188.
Aisen, Ari, and Ralf Frank. 2014. On the Efficiency of Currency Redenomination. IMF Working Paper. International Monetary Fund.
Annazah, N. S. 2018. “Exchange Rate Pass-Through and Inflation Dynamics in Indonesia.” Buletin Ekonomi Moneter dan Perbankan 21, no. 2: 215-238.
Badan Pusat Statistik. 2024. Indonesia Trade Balance Statistics 2014-2024. Jakarta: BPS.
Bank Indonesia. 2024a. Inflation Targeting Framework and Monetary Policy Updates. Jakarta: Bank Indonesia.
Bank Indonesia. 2024b. Monetary Policy Review 2015-2024: Maintaining Stability, Supporting Growth. Jakarta: Bank Indonesia.
Blanchard, Olivier. 2016. Macroeconomics. 7th ed. Pearson.
Bowdler, Christopher. 2005. “Exchange Rate Pass-Through and Monetary Policy.” Oxford Bulletin of Economics and Statistics 67, no. 4: 405-423.
Calvo, Guillermo A. 1996. Money, Exchange Rates, and Output. Cambridge, MA: MIT Press.
“Central Bank Credibility and Monetary Policy in Indonesia.” 2006. Economic Modelling 23, no. 2: 285-297.
Dantzer, Robert. 2003. “Neuroimmune Interactions: From the Brain to the Immune System and Vice Versa.” Physiological Reviews 83, no. 1: 63-83.
Goldberg, Pinelopi Koujianou, and Michael M. Knetter. 1997. “Goods Prices and Exchange Rates.” Journal of Economic Literature 35, no. 3: 1243-1272.
Gujarati, Damodar N., and Dawn C. Porter. 2009. Basic Econometrics. 5th ed. New York: McGraw-Hill.
Kaufmann, Daniel, Aart Kraay, and Massimo Mastruzzi. 2010. “The Worldwide Governance Indicators.” World Bank Policy Research Working Paper.
Obstfeld, Maurice, and Kenneth Rogoff. 1996. Foundations of International Macroeconomics. Cambridge, MA: MIT Press.
Pesaran, M. Hashem, Yongcheol Shin, and Richard J. Smith. 2001. “Bounds Testing Approaches to the Analysis of Level Relationships.” Journal of Applied Econometrics 16, no. 3: 289-326.
Sugiyono. 2018. Metode Penelitian Kuantitatif, Kualitatif, dan R&D. Bandung: Alfabeta.
Tanzi, Vito, and Ludger Schuknecht. 2000. Public Spending in the 20th Century. Cambridge: Cambridge University Press.
Wooldridge, Jeffrey M. 2013. Introductory Econometrics: A Modern Approach. 5th ed. Mason, OH: Cengage Learning.