Dynamic Interactions of Inflation, Policy Interest Rates, and Exchange Rates in Indonesia (2010–2024): Implications for Corporate Financial Management
DOI:
https://doi.org/10.22441/jurnal_mix.2026.v16i3.003Keywords:
Inflation, Policy Interest Rate, Exchange Rate, VECM, Corporate Financial ManagementAbstract
Objectives: This study evaluates the long-run equilibrium, equation-specific adjustment, short-run predictive links, and 10-month shock responses among Indonesian inflation, the Bank Indonesia policy rate, and the IDR/USD exchange rate during 2010–2024, with emphasis on corporate financial management.
Methodology: The analysis uses 180 monthly observations from January 2010 through December 2024: headline CPI inflation (year on year, percent), the prevailing policy rate at month-end (percent per annum), and the natural logarithm of the end-of-period IDR/USD rate. Augmented Dickey–Fuller tests, Johansen cointegration, a rank-one VECM corresponding to a level VAR(2), heteroskedasticity-consistent inference, residual diagnostics, and generalized impulse responses with 1,000 wild-bootstrap replications are applied.
Findings: All three variables are I(1), providing an internally consistent basis for the Johansen/VECM analysis. The Johansen trace and maximum-eigenvalue tests identify one cointegrating relation. The error-correction term is significant in the inflation and policy-rate equations but not in the exchange-rate equation. No cross-variable short-run Granger-predictive effect is significant at 5 percent. Generalized responses show persistent own shocks and positive policy-rate responses to inflation and exchange-rate innovations, but several cross-responses have wide confidence intervals. Serial-correlation and stability checks are satisfactory; non-normality and inflation-equation ARCH motivate robust inference.
Conclusion: The evidence supports a shared long-run equilibrium with adjustment concentrated in inflation and the policy rate, while the rupiah is comparatively weakly endogenous to this three-variable domestic system. For firms, banks, and investors, the results support integrated inflation–interest-rate–currency scenarios, refinancing discipline, and explicit foreign-exchange hedging rather than single-indicator forecasts.
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