The Effect Of Monetary Policy On The Natural Level Unemployment In Indonesia's Fluctuation Economy 2008-2023

Abstract

This research aims to analyze the influence of monetary policy on fluctuations in the natural unemployment rate in the Indonesian economy from 2008 to 2023. This research focuses on the variables of real interest rates, money supply and real exchange rates, using multiple linear regression analysis with monthly time series data. The research results show a strong positive correlation between real interest rates and the natural unemployment rate. This indicates that an increase in real interest rates will be related to an increase in the natural unemployment rate, while a decrease in real interest rates will be related to a decrease in the natural unemployment rate, in accordance with classical theory which suggests that real interest rates function as loan prices that influence investment, economic productivity, labor demand, and unemployment rates. In addition, the amount of money in circulation has a significant positive effect on the natural unemployment rate, indicating that an increase in the money supply will have an impact on increasing the natural unemployment rate, and vice versa, in accordance with the quantity theory of money and the Phillips curve. Empirical data also show a significant inverse correlation between the real exchange rate and the natural rate of unemployment, indicating that a decrease in the real exchange rate is associated with a decrease in the natural rate of unemployment, while an increase in the real exchange rate is associated with an increase in the natural rate of unemployment. Recommendations include coordination of monetary and fiscal policy, as well as future research that expands the model with more sophisticated methods and additional variables to provide a more comprehensive picture of the influence of monetary policy on the natural rate of unemployment. Therefore, the main aim of this research is to provide deeper insights to assist more effective policies in managing the natural rate of unemployment in a fluctuating economy.