An application of the GMM model on economic growth in Indonesia

• Aliasuddin, Eddy Gunawan, Yunidar Purnama Sari Fakultas Ekonomi dan Bisnis, Universitas Syiah Kuala, Banda Aceh, Indonesia

Abstract

This study empirically examines the effects of money supply, exports, and interest rates on economic growth in Indonesia via a Generalized Method of Moment (GMM) model. As a result, the use of Instrumental Variables (IV) is valid for the model and that all variables have a significant effect, with a one percent significance level. Money supply and exports have a positive effect on economic growth and interest rates have a negative effect on economic growth. In conclusion, the implementation of an effective monetary policy, one that uses interest rates well, is necessary to maintain the stability of the money supply.