The purpose of this study is to investigate how changes in the oil price impact inflation and economic growth in Indonesia. This study is interesting in the sense that current literature has so far not studied the relationship between oil price, inflation, and economic growth for a country like Indonesia which experienced a transition from an oil-exporting country to an oil-importing country in 2004.
The variables used in this study include per capita real gross domestic product, consumer price index, money supply, exchange rate between US dollars and Indonesian Rupiah, exports, imports, and oil price. The data are collected at the quarterly interval from the Taiwan Economic Journal (TEJ), covering the period from 1990:Q1 to 2011:Q4 which is furthermore divided into periods of oil export (1990:Q1-2004:Q4) and oil import (2005:Q1-2011:Q4). The seven variables are found to be I(1) series with ADF and PP unit root tests. They become stationary after taking the first difference. Two simultaneous equations models with per capita real GDP growth and inflation as dependent variables are then formulated: Model 1 with the entire sample period and Model 2 with a dummy variable to divide the entire sample period into periods of oil export and oil import.
