The Effect of the Fed Rate, Exchange Rate and Economic Growth on the IHSG with Inflation as a Moderating Variable
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International Journal of Research and Review
DOI: https://doi.org/10.52403/ijrr.20210735
Vol.8; Issue: 7; July 2021
Website: www.ijrrjournal.com
Research Paper E-ISSN: 2349-9788; P-ISSN: 2454-2237
The Effect of the Fed Rate, Exchange Rate and
Economic Growth on the IHSG with Inflation as a
Moderating Variable
Tohap Parulian1, A. Mahendra2
1
Faculty of Economics and Business at Universitas Medan Area, Indonesia
2
Faculty of Economics at Universitas Katolik Santo Thomas, Indonesia
Corresponding Author: Tohap Parulian
ABSTRACT market is seen as one of the most effective
means of raising long-term funds. The rate
This research is intended to know the influence of return that will be obtained is directly
of The Fed Rate, Exchange Rate, and Economic proportional to the risk that must be faced,
Growth on the IHSG, with Inflation as a meaning that the higher the rate of return,
moderating variable in Indonesia. The
the higher the level of risk and vice versa.
population in this research is from Indonesia.
The multiple regression analysis conducted Before investing in the capital market, an
estimates. The data used in this study were investor must understand and seek
secondary, consisting of the fed rate, exchange considerations in deciding on stock price
rate, and economic growth on the IHSG for the movements in the capital market.
year 2000-2019. This research shows that the Investors need complete, relevant,
Fed Rate variable has no significant effect based accurate, and timely information to conduct
on the partial test (t-test). In contrast, the capital market analysis. One indicator of
Exchange Rate and Economic Growth variables stock price movements is the stock price
have a significant effect on the variables of the index. The index that investors often pay
IHSG in Indonesia, the simultaneous test (F attention to when they want to invest in the
test), the fed rate, exchange rate, and economic
Indonesia Stock Exchange is the Composite
growth have a significant effect on the variables
of the IHSG. Inflation can moderate the Stock Price Index (IHSG). This stock price
relationship between the fed rate, exchange rate, index becomes an indicator of market
and economic growth on the IHSG. trends, meaning that the movement of the
index describes market conditions, whether
Keywords: The Fed Rate, Exchange Rate, the market is active or sluggish (Gom,
Economic Growth, Inflation, IHSG 2014). If a macroeconomic indicator is
terrible, it will have a bad impact on the
INTRODUCTION development of the capital market.
The capital market in Indonesia is a However, if an economic indicator is good,
developing market and is very vulnerable to it will also influence capital market
general macroeconomic conditions. The conditions (Sunariyah, 2006). IHSG
capital market is one of the drivers of a movements constantly fluctuate from time
country's economy because the capital to time. The capital market in an uptrend or
market is a means of forming capital, a downtrend can be seen from the volatility
accumulating long and short-term funds of recorded stock prices. Changes or
directed at increasing public participation in developments that occur in various
fundraising to support national development economic variables of a country will
financing (Jannata, 2018). The capital influence the capital market. The following
International Journal of Research and Review (ijrrjournal.com) 251
Vol.8; Issue: 7; July 2021Tohap Parulian et.al. The effect of the fed rate, exchange rate and economic growth on the IHSG with inflation
as a moderating variable.
is the IHSG movement that occurred in production, sales, funding, investment,
2000-2019. labor, announcements from the management
board of directors, and announcements of
financial statements from the company. In
contrast, external factors include
announcements from the government, legal
announcements, securities industry
announcements, domestic political turmoil,
exchange rate fluctuations, and various
issues both from within the country and
from abroad (Gom, 2014). In this study, the
authors are interested in examining external
factors, namely Fed Rate (X1) and
Exchange Rate (X2)) and internal factors,
namely Economic Growth (X3) and
Inflation (Z), as moderating variables on the
Figure 1:IHSG Movement Perio 2000-2019 Composite Stock Price Index (Y).
Source: IDX
The Fed is the central bank in the
Based on the table above, it can be United States responsible for monitoring
seen that over the last 20 years, the IHSG and responding to developments in the
has experienced a significant increase economy. The Fed (Federal Reserve)
(bullish) and a decrease (bearish). In 2007- oversees the stock market and can influence
2008, the IHSG experienced a very sharp Indonesia's interest rates and economic
decline of 49%. It was triggered by the activity. All stock markets, including those
subprime mortgage crisis in the United in the region, are closely watching the
States, which caused most world stock price development of stocks in the United States.
indices to decline, and countries in the What the Fed says will be closely followed
world experienced price increases in general by the market. The market will react quickly
or Inflation. In 2012-2013 the IHSG again to the Fed's policy plans (Misgiyanti &
recorded a decline of 3.4%. This condition Zuhroh, 2009). The Fed Rate is the interest
was caused by data on the domestic rate set by the Fed as a benchmark for
economy that did not meet the target, interest rates on loans and deposits for
particularly the current account and trade banks and institutions of 2017 (Department
balance deficits. In 2015, the IHSG fell of the United States of America). When the
again by 12.1%. This phenomenon is caused Fed increases interest rates, much money is
by the policy of the US central bank (The absorbed so that the money supply will
Federal Reserve) in raising its interest rate decrease. First, saving funds in a bank is a
(Fed Rate). IHSG recorded another decline better alternative because high-interest rates
in 2018 of -2.54%. The decline in this index can provide higher returns. Second,
was due to several negative catalysts both tightening monetary policy by the Fed risks
from within the country. Indonesia's pushing the economy into a recession,
economic growth has not moved from 5%, which could reduce profits. As a result,
the depreciation of the rupiah exchange rate, stock prices often experience a decline when
the trade balance deficit, foreign sentiments the Fed increases interest rates. However,
such as the trade war, and the increase in the the Fed Rate is not the only factor
US Fed Funds Rate (FFR) central bank. determining the rise or fall of the IHSG.
Two main factors influence the Nevertheless, many other factors affect the
IHSG movement, namely: internal factors rise or fall of the IHSG.
and external factors. Internal factors are The study's results by Manihuruk &
announcements about marketing, Darmawan (2017) suggest that the Fed has
International Journal of Research and Review (ijrrjournal.com) 252
Vol.8; Issue: 7; July 2021Tohap Parulian et.al. The effect of the fed rate, exchange rate and economic growth on the IHSG with inflation
as a moderating variable.
no significant effect on the IHSG. The Juita et al. (2013) suggested that the
results of this study correspond with exchange rate positively and significantly
Nellawati & Isbanah (2019) and Syarif & affected the IHSG. The results of this study
Asandimitra (2015). Misgiyanti & Zuhroh are in line with Nurwani (2016) and
(2009) found that the Fed had a negative Sutriyadi (2019). In contrast to research
and significant effect on the IHSG. The results (Misgiyanti & Zuhroh, 2009), the
results of this study are convenient with exchange rate did not affect the IHSG. The
Gom (2014) and Jannata (2018). It is results of this study are in line with
different from Miyanti and Wiagustini's Setiawan & Mulyani (2020) and Oktavia &
(2018) research which suggests that the Handayani (2018).
Fed has a significant positive effect on the Gross Domestic Product (GDP) is
IHSG. The results of this study are in line the market value of all goods and services
with Murtiningtyas (2019). produced in a certain period. GDP growth
In the exchange between two indicates economic growth (Suarjaya &
different currencies, there will be a Asmara, 2018). Improving economic growth
comparison of the value/price between the is tantamount to an increase in people's
two currencies. This comparison of values is purchasing power. It can create
often referred to as the exchange rate opportunities for the company to increase
(Nopirin, 1988). Determination of foreign sales. The company's profits will also
exchange rates is essential for forex market increase when the company's income
players because the foreign exchange rate increases, so that the company's share price
dramatically affects the number of costs will increase, which is accompanied by a
incurred and benefits (profits). It will be strengthening of the IHSG (Tandelilin,
obtained in goods, services, and securities 2010:342).
on the foreign exchange (Khalwaty, 2003). The research results conducted by
2000). The exchange rate is one of the tools Mahendra (2020) suggest that economic
for economic policy for a country. The growth has a negative and significant effect
decline and increase in the Indonesian on the IHSG. The results of this study are in
economy can be seen from the movement of line with Oktavia & Handayani (2018).
the Rupiah currency value (Juita et al., Meanwhile, Juita et al. (2013) suggested
2013). Indonesia currently uses a floating that economic growth positively and
exchange rate with a free and stable significantly affected the IHSG. The results
exchange rate. The appreciation and of this study are in line with Sutriyadi
depreciation of the Rupiah exchange rate (2019). In contrast to the research results by
can lead to fluctuations in stock prices. Due Suarjaya & Asmara (2018), which revealed
to the issuer's policy of whether to export that economic growth did not affect the
raw materials or finished goods to or from IHSG. Inflation is one of the events that
abroad. The rupiah exchange rate will make describe a situation and condition where the
the cost of production using imported raw price of goods has increased and the
materials increase, which impacts currency's value has weakened. If it occurs
decreasing profits. The decline in the profit continuously, it will result in poor overall
level makes investors less interested in economic conditions and shake political
investing in these shares to decrease the stability (Fahmi, 2011). Inflation has a
stock price (Syarif and Asandimitra, 2015). positive impact and a negative impact
Astuti et al. (2013) show that the depending on the severity of Inflation. If
exchange rate has a negative and significant Inflation is light, it has a positive effect
effect on the IHSG. The results of this study because it can encourage a better economy,
are in line with Syarif & Asandimitra namely increasing national income and
(2015), Prahesti & Paramita (2020), and making people excited to work, save and
Nellawati & Isbanah (2019). Meanwhile, invest. On the other hand, in times of severe
International Journal of Research and Review (ijrrjournal.com) 253
Vol.8; Issue: 7; July 2021Tohap Parulian et.al. The effect of the fed rate, exchange rate and economic growth on the IHSG with inflation
as a moderating variable.
Inflation, when Inflation is out of control H5: Inflation can moderate The Fed Rate,
(hyperinflation), the economy becomes Exchange Rate, and Economic Growth on
chaotic, and the economy feels sluggish. IHSG.
People become discouraged from working,
saving, or investing and producing because RESEARCH METHODS
prices are rising rapidly (Kefi & Sutopo, This type of research includes the
2020). Inflation is closely related to a kind of quantitative research. The approach
decrease in the purchasing power of both used is causality and inferential. This study
individuals and companies. Research studies uses statistical analysis, which aims to test
on the relationship between Inflation and the hypothesis (Sugiyono, 2017). Research
stock returns are carried out in Widjojo's is conducted with a causal research
research (in Mahendra, 2020), which states approach to investigate cause-and-effect
that the higher the inflation variable, the relationships by observing the effects that
lower the profitability/company profits. The occur and the possible factors (causes) that
decline in company profits was due to bad cause these effects.
information for traders on the stock The populations in this study are The
exchange, causing a decline in the Fed Rate, Exchange Rate, Economic
company's stock price and the impact Growth, and IHSG. The sample is part or
affected the Composite Stock Price Index representative of the population that is the
(Mahendra, 2020). object of research. The sample in this study
is The Fed Rate, Exchange Rate, Economic
Framework Growth, and IHSG in Indonesia from 2000
Following the description of the to 2019.
background of the problem, literature
review, and previous research, a conceptual RESULT AND DISCUSSION
research framework prepares as follows: Normality test
Figure 2 Histogram Graph Normality Test Results
Source: Calculation Results of SPSS
H1: The Fed Rate has a negative and
significant effect on the IHSG. Based on Figure 2 above, it can be
H2: Exchange Rate has a negative and seen that the data distribution is normal and
significant effect on the IHSG. meets the normality assumption. It can be
H3: Economic Growth has a positive and seen from the formed line, which looks to
significant effect on the IHSG. have a bell shape.
H4: The Fed Rate, Exchange Rate, and
Economic Growth simultaneously positively
and significantly affect the IHSG.
International Journal of Research and Review (ijrrjournal.com) 254
Vol.8; Issue: 7; July 2021Tohap Parulian et.al. The effect of the fed rate, exchange rate and economic growth on the IHSG with inflation
as a moderating variable.
Linear regression of The Fed Rate, by testing it at the 95% confidence level (=
Exchange Rate, and Economic Growth on 5%).
IHSG in Indonesia
Table 1: Regression Results
Simultaneous Testing of Regression
Coefficients Coefficients (Statistical F Test)
Model Unstandardized t Sig.
Coefficients Table 2: ANOVA test
B Std. Error Model F Sig.
(Constant) -9829.047 1957.694 -5.021 .000 1 Regression 33.823 .000b
1 TheFed -158.213 110.921 -1.426 .173 Residual
ExcRate -.807 .104 -7.760 .000 Total
EcoGrowth 889.129 236.248 3.764 .002 Source: Calculation Results of SPSS
a. Dependent Variable: IHSG
Source: Calculation Results of SPSS Based on the output of the SPSS
Individual Regression Coefficient Testing program, the F-count value is 33.823 with a
(Statistical t-Test) probability (significance) value of 0.000.
1. The Fed Rate Thus Ha is accepted, because the value of F-
For The Fed Rate variable, the t- count> F-table (33.823> 3.24) and the
count value is -1.426 with a probability probability value (significance) is greater
(significance) value of 0.173. Thus Ha is than the value of 0.05 (0.000 0.05) variable X1 (The Fed Rate), variable X2
and t-count> - t-table (-1.426>-2.119). It (Exchange Rate), and variable X3
means that it can be concluded that The Fed (Economic Growth) have a significant
Rate variable has no significant effect on the simultaneous effect on IHSG (Y) at the 95%
variable of IHSG in Indonesia by testing at confidence level (= 5%).
the 95% (= 5%) confidence level.
Coefficients Determinations
2. Exchange Rate Table 3: Coefficients Determinations
Model Summary
For the Exchange Rate variable, the Model R R Square Durbin-Watson
t-value is -7.760 with a probability 1 .929a .864 2.078
(significance) value of 0.000. Thus, Ha is Source: Calculation Results of SPSS
accepted, because the probability value is
smaller than the value 0.05 (0.000Tohap Parulian et.al. The effect of the fed rate, exchange rate and economic growth on the IHSG with inflation
as a moderating variable.
Based on the results of the residual new variables that are not included in
test in table 4, the moderation regression the model estimation.
equation is obtained as follows:
|e| = 3.228 + -.028 Y Acknowledgement: None
A variable is moderating if the P- Conflict of Interest: None
Value (Sig)Tohap Parulian et.al. The effect of the fed rate, exchange rate and economic growth on the IHSG with inflation
as a moderating variable.
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Jurnal Ilmu Manajemen Vol 8 No.3 inflation as a moderating variable. International
Universitas Negeri Surabaya. Journal of Research and Review. 2021; 8(7):
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Pengaruh Perubahan Nilai Tukar Rupiah, 20210735
Tingkat Inflasi dan Indeks Bursa
Internasional Terhadap Indeks Harga Saham
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