Skip to main content
alam.amiki@gmail.com 6281260272238
Register
Articles

The Effect of Interest Rates, Inflation, and Money Supply on Economic Growth through Exchange Rate Transmission in Indonesia

  • 1*,2,3,4,5 Universitas Negeri Makassar

* Corresponding Author: Anugrah Tri Saputra

Open Access
DOI
https://doi.org/10.59431/ijer.v6i3.898
Published
Pages
1146–1153

Issue

Vol. 6 No. 3 (2026)

Indonesian Journal Economic Review (IJER)
September

Abstract

Understanding monetary transmission mechanisms is critical for emerging open economies navigating external volatility. This study investigates the direct and indirect impacts of interest rates, inflation, and money supply on Indonesia's economic growth from 2014 to 2024, examining the mediating role of the Rupiah-to-USD exchange rate. Utilizing a quantitative explanatory design with annual time-series data from Bank Indonesia and BPS, the research applies Partial Least Squares Structural Equation Modeling (PLS-SEM) via SmartPLS 4. Empirical results demonstrate a high coefficient of determination for the exchange rate (R² = 0.939) and economic growth (R² = 0.359). Findings reveal that interest rates exert a significant direct effect on growth (coef = 0.417, p = 0.003) but have an insignificant impact on the exchange rate. Inflation positively influences growth (coef = 0.650, p = 0.001) while negatively affecting the exchange rate (coef = -0.313, p = 0.007). The money supply significantly impacts both exchange rates (coef = 0.791, p = 0.000) and economic growth (coef = -0.390, p = 0.025). Crucially, the exchange rate acts as a potent mediating channel (coef = 0.894, p = 0.000), transmitting shocks to real output. The findings underscore that monetary policy must integrate exchange rate stability and liquidity management alongside interest rate adjustments.

Keywords

Economic Growth. Interest Rates Inflation Money Supply Exchange Rate Structural Equation Modeling (SEM)

How to Cite

Saputra, A. T. ., Astuty, S., Irwandi, Regina, & Kamaruddin, C. A. (2026). The Effect of Interest Rates, Inflation, and Money Supply on Economic Growth through Exchange Rate Transmission in Indonesia. Indonesian Journal Economic Review (IJER), 6(3), 1146–1153. https://doi.org/10.59431/ijer.v6i3.898

References

  • Akalpler, E., & Duhok, D. (2018). Does monetary policy affect economic growth: Evidence from Malaysia. Journal of Economic and Administrative Sciences, 34(1). https://doi.org/10.1108/jeas-03-2017-0013
  • Chowdhury, A. H. M. Y., Hamid, M. K., & Akhi, R. A. (2019). Impact of macroeconomic variables on economic growth: Bangladesh perspective. Information Management and Computer Science, 2(2). https://doi.org/10.26480/imcs.02.2019.19.22
  • Damayanti, C. R., & Darmawan, A. (2024). Exchange rate, inflation, interest rate, and economic growth: How they interact in ASEAN. Profit: Jurnal Administrasi Bisnis, 18(2), 245–256. https://doi.org/10.21776/ub.profit.2024.018.02.8
  • Friedman, M. (1956). The quantity theory of money: A restatement. In Studies in the Quantity Theory of Money (Vol. 4, pp. 3–20). University of Chicago Press.
  • Likuayang, A. A., & Matindas, E. C. (2021). Komparasi makro ekonomi negara-negara ASEAN tahun 2015-2018. Klabat Journal of Management, 2(1), 57. https://doi.org/10.60090/kjm.v2i1.559.57-85
  • Mala, S., Hatim, F., & Hasim, D. (2024). The effect of exchange rates, interest rates, inflation, net exports on economic growth in Indonesia. Global Economic, Social, and Development Review, 28(2), 47–61. https://doi.org/10.24123/gesdr.v28i2.7031
  • Mamangkey, M., Rotinsulu, T. O., & Mandeij, D. (2025). Analisis pengaruh jumlah uang beredar, tingkat suku bunga, dan inflasi terhadap pertumbuhan ekonomi di Provinsi Sulawesi Utara. Jurnal Berkala Ilmiah Efisiensi, 25(4), 13–24.
  • Mankiw, N. G. (2019). Macroeconomics (10th ed., Vol. 1). Worth Publishers.
  • Mishkin, F. S. (2011). The economics of money, banking, and financial markets (G. Bennett, Ed.; 4th ed., Vol. 1). Pearson Canada.
  • Sitorus, N. H., & Fajarini, D. (2023). Perubahan ekonomi global dan neraca pembayaran. Journal on Education, 06(01).
  • Syahyuti, J., Silalahi, S., & Wardhana, I. (2024). Urgensi dan strategi pengarusutamaan ekonomi Pancasila dalam pembangunan ekonomi nasional. Pancasila: Jurnal Keindonesiaan, 4(1), 1–10. https://ejurnalpancasila.bpip.go.id/index.php/PJK/article/view/520/92
  • Thobarry, A. (2009). Analisis pengaruh nilai tukar, suku bunga, laju inflasi dan pertumbuhan GDP terhadap indeks harga saham sektor properti (Kajian empiris pada Bursa Efek Indonesia periode pengamatan tahun 2000-2008). Universitas Diponegoro.
  • Todaro, M. P., & Smith, S. C. (2006). Pembangunan ekonomi (D. Barnadi, S. Saat, & W. Hardani, Eds.; 9th ed., Vol. 1). Penerbit Erlangga.
  • Uçar, I. H. (2024). The impact of exchange rate volatility on the inflation rate: Evidence from Turkey. Haliç Üniversitesi Sosyal Bilimler Dergisi, 7(2), 143–191. https://dergipark.org.tr/en/download/article-file/4097233
  • Utami, A. D. P., Nafisha, A. R., Agistia, D. S., Aliasuddin, A., & Rahmi, N. (2026). The impact of inflation, interest rates, and exchange rates on economic growth in Indonesia. Journal of Applied Research in Economics and Business, 1(1), 1–5.

Author Biographies

  • Anugrah Tri Saputra, Universitas Negeri Makassar

    Development Economics Study Program, Faculty of Economics and Business, Universitas Negeri Makassar, Makassar City, South Sulawesi Province, Indonesia.

  • Sri Astuty, Universitas Negeri Makassar

    Development Economics Study Program, Faculty of Economics and Business, Universitas Negeri Makassar, Makassar City, South Sulawesi Province, Indonesia.

  • Irwandi, Universitas Negeri Makassar

    Development Economics Study Program, Faculty of Economics and Business, Universitas Negeri Makassar, Makassar City, South Sulawesi Province, Indonesia.

  • Regina, Universitas Negeri Makassar

    Development Economics Study Program, Faculty of Economics and Business, Universitas Negeri Makassar, Makassar City, South Sulawesi Province, Indonesia.

  • Citra Ayni Kamaruddin, Universitas Negeri Makassar

    Development Economics Study Program, Faculty of Economics and Business, Universitas Negeri Makassar, Makassar City, South Sulawesi Province, Indonesia.

License

Copyright (c) 2026 Anugrah Tri Saputra, Sri Astuty, Irwandi, Regina, Citra Ayni Kamaruddin

Creative Commons License

This work is licensed under a Creative Commons Attribution-NonCommercial-ShareAlike 4.0 International License.

This is an open-access journal. All articles are distributed under the terms of the Creative Commons Attribution 4.0 International License (CC BY 4.0), which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited.

Under this license, you are free to:

  • Share: Copy and redistribute the material in any medium or format.
  • Adapt: Remix, transform, and build upon the material for any purpose, even commercially.

Attribution Requirements:
You must give appropriate credit, provide a link to the license, and indicate if changes were made. You may do so in any reasonable manner, but not in any way that suggests the licensor endorses you or your use.

Copyright and Retention:
Authors retain copyright without restrictions and grant this journal the right of first publication under an open-access model. The journal retains non-exclusive publishing rights for archiving, indexing, and scholarly dissemination.

Usage Statistics

Most read articles by the same author(s)