PRICE VOLATILITY OF SHALLOT EFFECT ON INFLATION IN EAST JAVA

Abstract

This study aims to analyze changes in prices and volatility of food commodities and their effect on inflation in East Java. The food commodities in this study were shallots. The purpose of this study is to identify the existence of price volatility of shallots, this study uses the ARCH / GARCH model. Then, this study uses further analysis using the ECM (Error Correction Model) model to determine the effect of price changes and the volatility of shallots on inflation in East Java. The ARCH-LM test results show that price volatility occurs in changes in shallot prices. Then the estimation results of the ECM model show that changes in shallot prices, real exchange rates and real interest rates have a significant positive effect on inflation in East Java. In this study, the price of shallots has no significant effect on inflation in East Java. Thus, goverment shold protect the price stability of food comodities especially shallot which the product depend on impor to keep mild inflation.