COMPARISON OF VECTOR AUTOREGRESSIVE (VAR) AND VECTOR ERROR CORRECTION MODELS (VECM) FOR THE COMPOSITE STOCK PRICE INDEX (JCI) IN INDONESIA

Lathif Arafat. A; Williya Meta; Meilisa Meilisa

doi:10.55047/transekonomika.v4i6.754

Lathif Arafat. A* Universitas Prima Indonesia, PSDKU Pekanbaru, Riau, Indonesia
Williya Meta Universitas Prima Indonesia, PSDKU Pekanbaru, Riau, Indonesia
Meilisa Universitas Riau, Pekanbaru, Riau, Indonesia

DOI: https://doi.org/10.55047/transekonomika.v4i6.754

Keywords: JCI, DJIA, Inflation, Interest Rate

Abstract

The capital market has a major role for economic development which is able to encourage capital formation and sustain economic growth. Financial liberalisation between countries in the world will make capital markets in each country interconnected. If there is a large movement in the global stock index, it will also have an impact on the JCI in Indonesia. In addition to global indices, macroeconomics is also seen as capable of influencing capital markets. Inflation and interest rates are macroeconomic components that can be used. The purpose of this research is to be able to see the relationship between one variable and another, namely the Composite Stock Price Index (JCI), Dow Jones Industrial Average (DJIA), inflation rate, interest rate. The VAR/VECM analysis approach was used in this study. Data was taken from 2017 to 2023. The data used for modelling is 84 observations. Based on the results, Inflation and DJIA have a long-term influence on the increase of JCI, while interest rates have no long term influence on JCI in Indonesia. With the model projection for the next 10 years. The projection results state that the variability of JCI in Indonesia is most dominantly explained by the JCI variable itself with a proportion of 95.21619%, while inflation contributes 0.193202%, interest rates 0.249170%, and DJIA index 4.341438%. The results of this analysis can be used as a consideration of strategies in increasing the JCI in Indonesia to maintain the health and stability of the economy.

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