The Influence of Inflation and Unemployment on the Indonesian Economy: VAR Approach

English

Abstract

This paper will examine the effect of inflation on economic growth, as well as its impact
on the unemployment rate Indonesia Country. The research data was obtained from
World Bank sources and measured the period 1997-2020. We use inflation, GDP and
unemployment as research variables. Furthermore, the data will be tested and analyzed
using the Vector Autoregressive (VAR) model. We find that inflation in the past had an
influence and impact on current economic growth. The increase in inflation tends to
reduce and hinder the country's economic growth. In addition, the historical inflation rate
has a detrimental effect on the current unemployment rate. On the other hand, the
historical unemployment rate and current GDP economic growth have an interesting link.
However, since they are inversely correlated, GDP growth has a negative effect on the
unemployment rate, causing a decline in the current rate of unemployment to occur after
an increase in past growth. Along with reducing inflation, supportive policies for
economic growth must be taken into account by policymakers. Additionally, Indonesia's
unemployment rate will be minimized and decreased with maximal economic
development.