Analysis of Economic Factors that Affecting Inflation Rate in ASEAN Member Countries with Panel Data Regression

Abstract

Panel data regression model is the regression model using panel data which is a combination of cross section data and time series data. To estimate the panel data regression model, there are 3 approaches, those are pooled least square, fixed effect model, and random effect model. Parameters on pooled least square approach be estimated by Ordinary Least Square (OLS) method. On fixed effect model approach, parameters be estimated by OLS with the addition of dummy variable. Parameters on random effect model be estimated by Generalized Least Square (GLS). This research aims to estimate the panel data regression model to the data rate of inflation percentage of ASEAN member countries in 2000-2008 to know the economic factors that affect the inflation rate. The results of panel data analysis shows that the appropriate panel data regression model for these data is the fixed effect model with weighting (cross section weights) and white heteroscedasticity. This model indicates that the Consumer Price Index and money growth significantly affected the inflation rate of the ASEAN member countries.