The Impact of Inflation, Exchange Rate, Interest Rate, and Financial Stability on Economic Growth in Indonesia: An ARDL Approach

Abstract

This study aims to analyze the impact of inflation, exchange rate, interest rate, and financial stability on economic growth in Indonesia during the period 2010–2024. The study employs annual time series data and applies the Autoregressive Distributed Lag (ARDL) approach to examine both short-run and long-run relationships among variables. The results of the Augmented Dickey-Fuller (ADF) test indicate that all variables—economic growth (GDP), inflation (INF), exchange rate (KURS), interest rate (RATE), and financial stability (FS)—are not stationary at level but become stationary at the first difference, implying that the variables are integrated at order I(1). The ARDL estimation results reveal that inflation, exchange rate, interest rate, and financial stability significantly influence economic growth in the short run. Furthermore, the Error Correction Model (ECM) shows a negative and statistically significant error correction term, confirming the existence of a long-run equilibrium relationship among the variables. These findings suggest that macroeconomic variables play a crucial role in shaping economic growth dynamics in both the short and long run. Therefore, effective macroeconomic policy management is essential to maintain economic stability and sustainable growth