The Effect of Interest Rates, Exchange Rates and Output Gap on Inflation in Five ASEAN Countries: A Panel Data Evidence

Almost every country, both developed and developing ones, faces stability problems and economic growth problems. One of the issues that receives special attention in each country is inflation. Inflation is seen as a crucial variable for potential economic conditions where sustainable economic growth is the main goal of every country. Unstable inflation can be influenced by macroeconomic variables, including interest rates, exchange rates, and output gaps. Observing how the determinants affect inflation, we hypothesize that interest rates and exchange rates have a negative and significant effect on inflation while the output gap has a positive and significant effect on inflation. To explore our goals, we use panel data consisting of ASEAN countries including Indonesia, Malaysia, Singapore, Thailand and the Philippines. The panel data analysis method allows us to study the dynamics of changes with time series by using the Fixed Effect Model. The data used in this study are secondary data for 2000-2019 obtained from the World Bank and Global Economic Data, Indicators, Charts & Forecasts. The results showed that the variables Interest Rate, Exchange Rate and Output Gap together had a significant effect on inflation. Interest Rates and Exchange Rates have a negative and significant effect on Inflation in the five ASEAN countries. Meanwhile, the Output Gap has a positive and significant effect on inflation in the five ASEAN countries. Indonesia and the Philippines have the highest inflation estimates. Indonesia is the country with the highest inflation with an average inflation of 6.76%.The lowest inflation intercepts and estimates were in Singapore. The inflation rate over the past 20 years in Singapore has tended to fluctuate with an average of 1.53%.