Analysis of the Interdependence of Monetary Instruments against Real Money Demand in Indonesia

This research aims to determine how the relationship between variables gross domestic product, interest
rates, exchange rates, and inflation against the demand for real money (M1) in Indonesia. The data used in
the study of this empirical data for the time series of the year 1987-2017 derived from Bank Indonesia and
the Central Bureau of Statistics (BPS). The analysis method in this research is The Vector Error Correction
Model (VECM). The results showed there is a direct relationship between the exchange rates with demand
for real money (M1). And there is a direct relationship with the demand for real money (M1) with inflation.
The results of the study also showed the gross domestic product of influential negative and significantly
affect the demand for real money in the short-term. Variable exchange rates, interest rates and inflation
effect no effect against the demand for real money (M1) in the short-term. The demand for real money (M1)
in Indonesia in the long-term be influenced in a positive and significant by the variable gross domestic
product, exchange rates, interest rate. While the variable is a negative and significant effect of inflation
against the demand for real money (M1) in Indonesia in the long-term.