Identification of the Phillips curve trade-off phenomenon in Indonesia, using the Generalized Method of Moments approach
Ginanjar Syamsuar (a*), Sumitro (b)
a) Department of Management, Sekolah Tinggi Ilmu Ekonomi Jakarta
Jalan Kayu Jati Raya 11A, Jakarta 13210, Indonesia
*ginanjar.syamsuar[at]stei.ac.id
b) Department of Management, Sekolah Tinggi Ilmu Ekonomi Jakarta
Jalan Kayu Jati Raya 11A, Jakarta 13210, Indonesia
Abstract
This study aims to identify the existence of the phenomena of the Phillips Indonesia curve trade-off in the period 1970 - 2018 using the analytical approach modeling Generalized Method of Moments (GMM). With respect to secondary data for 49 years (quarterly data), namely the variable inflation rate, unemployment rate, potential output and output gap analyzed, it is found that the phenomena of the Phillips curve trade-off occurred in Indonesia, namely the existence and pattern of the curve showed a change in almost every time, in accordance with changes in economic structure, especially those caused by the economic crisis. Between the two observation periods, namely the period before the crisis and after the crisis, the format of expectation formation and Phillips curve were significantly different. Before-crisis the influence of output-gap on changes in the development of inflation variables tends to be moderate and the dominance of the expectation formation format is backward and forward looking relatively balanced, whereas after-crisis the effect of output-gap pressure on inflation development tends to increase and the dominance of the expectation formation format is forward looking.
Keywords: Phillips curve trade-off; Generalized Method of Moments; GMM; backward-looking; forward-looking
Topic: Strategy and Business Economics