• Susan Sunila Sharma Deakin Business School, Deakin University
Keywords: Macroeconomic Variables, Inflation, Time-series, Predictability


We use an exhaustive list of Indonesia’s macroeconomic variables in a comparative analysis to determine which predictor variables are most important in forecasting Indonesia’s inflation rate. We use monthly time-series data for 30 macroeconomic variables. Using both in-sample and out-of-sample predictability evaluations, we report consistent evidence of inflation rate predictability using 11 out of 30 macroeconomic variables.


Download data is not yet available.


Barr, D.G., and Campbell, J.Y. (1997). Inflation, Real Interest Rates, and the Bond
Market: A Study of U.K. Nominal and Index-Linked Government Bond Prices.
Journal of Monetary Economics, 39, 361–383.
Berg, T., and Henzel, S. (2015). Point and density forecasts for the Euro Area using
Bayesian VARs. International Journal of Forecasting, 31, 1067–1095.
Caggiano, G., Kapetanios, G., and Labhard, V. (2011). Are More Data Always
Better for Factor Analysis? Results for the Euro Area, the Six Largest Euro Area
Countries and the UK. Journal of Forecasting, 30, 736–752.
Clark, T., and Ravazzolo, F. (2015). Macroeconomic Forecasting Performance
under Alternative Specifications of Time-Varying Volatility. Journal of Applied
Econometrics, 30, 551–575.
D’Agostino, A., Gambetti, L., and Giannone, D. (2013). Macroeconomic Forecasting
and Structural Change. Journal of Applied Econometrics, 28, 82–101.
Devpura, N., Narayan, P.K., and Sharma, S.S. (2018). Is Stock Return Predictability
Time-Varying? Journal of International Financial Markets, Institutions & Money,
52, 152–172.
Duasa, J., Ahmad, N., Ibrahim, M. H., and Zainal, M. (2010). Forecasting Inflation
in Malaysia. Journal of Forecasting, 29, 573–594.
Forni, M., Hallin, M., Lippi, M., and Reichlin, L. (2003). Do Financial Variables Help
Forecasting Inflation and Real Activity in the Euro Area. Journal of Monetary
Economics, 50, 1243-1255.
Giannone, D., Lenza, M., Momferatou, D., and Onorante, L. (2014). Short-Term
Inflation Projections: A Bayesian Vector Autoregressive Approach. International
Journal of Forecasting, 30, 635–644.
Goodhart, C., and Hofmann, B. (2000). Asset Prices and the Conduct of Monetary
Policy, manuscript, London School of Economics.
Groen, J., Kapetanios, G., and Price, S. (2009). Are Al-Time Evaluation of Bank of
England Forecasts of Inflation and Growth. International Journal of Forecasting,
25, 74-80.
Gupta, R., and Kabundi, A. (2011). A Large Factor Model for Forecasting
Macroeconomic Variables in South Africa. International Journal of Forecasting,
27, 1076-1088.
Hossain, A. (2005). The Sources and Dynamics of Inflation in Indonesia: An
ECM Model Estimation for 1952-2002. Applied Econometrics and International
Development, 5-4, 93-116.
Mandalinci, Z. (2017). Forecasting Inflation in Emerging Markets: An Evaluation
of Alternative Models. International Journal of Forecasting, 33, 1082-1104.
Öğünç, F., Akdoğan, K., Başer, S., Chadwick, M., Ertuğ, D., and Hülagü, T.
(2013). Short-Term Inflation Forecasting Models for Turkey and a Forecast
Combination Analysis. Economic Modelling, 33, 312–325.
Phan, D.H.B., Sharma, S.S., and Tran, V.T. (2018). Can Economic Policy Uncertainty
Predict Stock Returns? Global Evidence. Journal of International Financial
Markets, Institutions and Money, 55, 134-150.
Ramakrishnan, U., and Vamvakidis, A. (2002). Forecasting Inflation in Indonesia.
IMF Working paper, No. 02/111.
Salisu, A.A., and Isah, K.O., (2018). Predicting US Inflation: Evidence from a New
Approach. Economic Modelling, 71, 134-158.
Sari, N. R., Mahmudy, W. F., and Wibawa, A. P. (2016). Bankpropagation on Neural
Network Method for Inflation Rate Forecasting in Indonesia. International
Journal of Advances in Soft Computing and its Applications, 8, 70–87.
Sharma, S. S. (2016). Can Consumer Price Index Predict Gold Price Returns?
Economic Modelling, 55, 269-278.
Sharma, S.S., Tobing, L., and Azwar, P. (2018). Understanding Indonesia’s
macroeconomic data: what do we know and what are the implications? Bulletin
of Monetary Economics and Banking, 21, 229-264.
Siregar, R., and Rajaguru, G. (2005a). Base Money and Exchange Rate: Sources of
Inflation in Indonesia during the Post-1997 Financial Crisis. Journal of Economic
Integration, 20, 185-215.
Siregar, R., and Rajaguru, G. (2005b). Sources of Variations Between the Inflation
Rates of Korea, Thailand, and Indonesia During the Post 1997 Crisis. Journal of
Policy Modeling, 27, 867-884.
Stock, J.H., and Watson, M.W. (2001). Forecasting Output and Inflation: The Role
of Asset Prices. Mimeo.
Westerlund, J., and Narayan, P.K. (2012). Does The Choice of Estimator Matter
When Forecasting Returns? Journal of Banking and Finance, 36, 2632-2640.
Westerlund, J., and Narayan, P.K. (2015). Testing for Predictability in Conditionally
Heteroskedastic Stock Returns. Journal of Financial Econometrics, 13, 342-375.
Wimanda, R. E., Turner., P. M., and Hall, M. J. B. (2011). Expectations and the
Inertia of Inflation: The Case of Indonesia. Journal of Policy Modelling, 33, 426-
How to Cite
Sharma, S. (2019). WHICH VARIABLES PREDICT INDONESIA’S INFLATION?. Buletin Ekonomi Moneter Dan Perbankan, 22(1), 87 - 102. https://doi.org/10.21098/bemp.v22i1.1038