UNDERSTANDING INDONESIA’S CITY-LEVEL CONSUMER PRICE FORMATION: IMPLICATIONS FOR PRICE STABILITY

  • Paresh Kumar Narayan Deakin University
Keywords: Consumer Price Index, Cities, Price discovery, Bank Indonesia

Abstract

Using the Consumer Price Index (CPI) data of 82 Indonesian cities, we propose thehypothesis of heterogeneity in the cities’ contribution to the aggregate IndonesianCPI. Using a price discovery model fitted to monthly data, we discover that (1) of the23 cities in the province of Sumatera, five contribute 44% and nine contribute 66.7%to price changes, and (2) of the 26 cities in Java, four alone contribute 41.6% to pricechanges. Even in smaller provinces, such as Bali and Nusa Tenggara, one city alonedominates the change in aggregate CPI. From these results, we draw implications formaintaining price stability.

Downloads

Download data is not yet available.

References

Alba, J.D., and Papell, D.H., (1998) Exchange Rate Determination and Inflation in
Southeast Asian Countries, Journal of Development Economics, 55, 421-437.
Basher, S.A., and Westerlund, J., (2008) Is There Really a Unit Root in the Inflation
Rate? More Evidence from Panel Data Models, Applied Economic Letters, 15,
161-164.
Ciccarelli, M., and Mojon, B., (2010) Global Inflation, Review of Economics and
Statistics, 92, 524-535.
Culver, S.E., and Papell, D.H., (1997) Is There a Unit Root in Inflation Rate?
Evidence from Sequential Break and Panel Data Models, Journal of Applied
Econometrics, 12, 435-444.
Hasbrouck, J., (1995) One Security, Many Markets: Determining the Contributions
to Price Discovery, Journal of Finance 50, 1175-1199.
Hendry, D.F., (2001) Modelling UK Inflation, 1875-1991, Journal of Applied
Econometrics, 16, 255-275.
Jangam, B.P., and Akram, V., (2019) Do Prices Converge Among Indonesian Cities?
an Empirical Analysis, Bulletin of Monetary Economics and Banking, 22, 239 – 262.
Kilian, L., (2008) A Comparison of The Effects Of Exogenous Oil Supply Shocks
on Output and Inflation in G7 Countries, Journal of the European Economic
Association, 6, 78-121.
Narayan, P.K., Sharma, S.S., Thuraisamy, K.S., and Westerlund, J., (2018) Some
Preliminary Evidence of Price Discovery in Islamic Banks, Pacific-Basin Finance
Journal, 52, 107-122.
Narayan, P.K., Sharma, S., and Thuraisamy, K., (2014) An Analysis of Price
Discovery from Panel Data Models of CDS and Equity Returns, Journal of
Banking and Finance, 41, 167-177.
Narayan, P.K., Phan, D.H.B., Thuraisamy, K. Westerlund, J., (2016) Price Discovery
and Asset Pricing, Pacific-Basin Finance Journal, 40, 224-235.
Narayan, P.K., Narayan, S., and Mishra, S., (2011) Do Remittances Induce Inflation?
Fresh Evidence from Developing Countries, Southern Economic Journal, 77, 914-
933.
Narayan, P. K., & Popp, S. (2010). A New Unit Root Test with Two Structural
Breaks in Level and Slope at Unknown Time. Journal of Applied Statistics, 37,
1425-1438.
Narayan, P. K., & Popp, S. (2013). Size and Power Properties of Structural Break
Unit Root Tests. Applied Economics, 45, 721-728.
Sharma, S.S., (2019) Which Variables Predict Indonesia’s Inflation? Bulletin of
Monetary Economics and Banking, 22, 87-102.
Westelius, N.J., (2005) Discretionary Monetary Policy and Inflation Persistence,
Journal of Monetary Economics, 52, 477-496.
Westerlund, J., Reese, S., and Narayan, P.K., (2017) A Factor Analytical Approach
to Price Discovery, Oxford Bulletin of Economics and Statistics, 79, 366-394.
Zozicki, S., and Tinsley, P.A., (2012) Effective Use of Money Information in
Estimating The Evolution of Expected Inflation, Journal of Money Credit and
Banking, 44, 145-169.
Published
2019-12-31
How to Cite
Narayan, P. (2019). UNDERSTANDING INDONESIA’S CITY-LEVEL CONSUMER PRICE FORMATION: IMPLICATIONS FOR PRICE STABILITY. Buletin Ekonomi Moneter Dan Perbankan, 22(4), 405 - 422. https://doi.org/10.21098/bemp.v22i4.1239
Section
Articles