This study aims to analyze the impact of changes in money base and SBI rate to inflation and economic growth in Indonesia; and analyze cauaality between SBI rate, money base, inflation, and economic growth. Vector Error Correction Model (VECM) and Granger Causality are used as the method of analysis.
The result shows that granger causality runs one way from monetary instruments (SBI rate and money base) to inflation; and result also shows that granger causality runs one way from economic growth to monetary instruments. The result of impulse response shows that response of inflation and economic growth is positive during the shock of SBI rate. The result of variace decomposition shows that base money has better capabilty in explaining inflation and economic growth
