Negative Expected Inflation–Evidence From Indonesi
DOI:
https://doi.org/10.14203/JEP.29.1.2021.17-26Keywords:
negative expected inflation, Phillips curveAbstract
This study is about the Phillips curve in Indonesia from 1990 to 2019 using a VAR model to find out whether there is a stable tradeoff a strictly negative relationship between inflation and unemployment in the shortrun, and whether the coefficient of expected inflation is positive. This study found that there is negative expected inflation, meaning that the relationship between inflation and unemployment is not strictly downward sloping in the short run. Negative expected inflation will face difficulties to Bank of Indonesia (BI) in managing interest rate stemmed from economic shocks. Monetary contraction will decrease output and increase both unemployment and inflation, but monetary expansion does not result in meaningful output growth. Monetary expansion should be maintained at a longer period to increase output and purchasing power so that the expected inflation will become dynamically positive as modified Phillips curve suggestedDownloads
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