The Effect of Exchange Rate and Unemployment on Inflation in Aceh Province

Abstract

This study aims to analyze the effect of exchange rates and unemployment rates on inflation in Aceh Province using the Vector Error Correction Model (VECM) method. Secondary data was obtained from the Central Statistics Agency (BPS) for exchange rate, unemployment, and inflation variables for the period 1988-2021. The research method used a quantitative approach with stationary tests, cointegration tests, and VECM estimation. The results show that in the short term, no variables significantly affect inflation. In the long term, the unemployment rate has a negative and significant effect on inflation. The research model has a good fit with an R-squared value of 90.78%. The research conclusion is that the influence of exchange rates and unemployment rates on inflation differs between the short and long term. These findings are expected to serve as a reference in formulating economic policies, particularly in managing inflation in Aceh Province through exchange rate and unemployment level control.