FLUCTUATIONS OIL PRICES IN WORLD AND THEIR IMPACT ON INDONESIAN MACROECONOMICS

Abstract

The impact of oil price fluctuations on GDP, inflation, exchange rates, interest rates, and industrial production indices in Indonesia is examined within a structural vector autoregressive (SVAR) framework. To accurately identify the relationship between oil prices and macroeconomic activity, the entire sample period is 1990-2021. Research shows that oil price shocks significantly impact three variables: GDP, inflation, and exchange rate. The results also show that oil price shocks hurt two other variables, namely the interest rate variable and the industrial production index. The findings derived from the analysis of the impulse response function indicate a detrimental effect on the growth of production, while exerting a favorable influence on inflation. However, the impact on industrial production, interest rates, and exchange rates is very modest and characterized by a degree of uncertainty.