Relevance Between GDP and Unemployment on Inflation in Indonesia: VECM Approach

Abstract

to live well, a healthy and controlled economic system is necessary to safeguard economic activities from potential losses in the future. In this study, the author will examine the analysis of macroeconomic variables GDP and Unemployment on inflation. The indicators used are Inflation, Unemployment, and GDP of Indonesia, from the year 1989-2023. employing the estimation method of VECM (Vector Error Correction Model), which is a derivative of VAR (Vector Autoregression) method used to project a system with time variables to analyze dynamic impacts. The sustainability of businesses is influenced by the business climate of a country; if a country has a stable economy, there is a high likelihood of having a healthy business climate as well. Based on the estimation results, it is known that GDP and Unemployment have an influence on inflation in the short and long term; hence, policies related to increasing GDP or controlling unemployment rates will affect the inflation rate.