Time-Varying Monetary–Fiscal Policy Interaction and Inflation Dynamics: Evidence from Indonesia using a TVP-VAR-SV Approach
Using a Time-Varying Parameter Vector Autoregression with Stochastic Volatility (TVP-VAR-SV) framework on Indonesian data from 2000 to 2025, this study finds that inflation dynamics have increasingly shifted from monetary to fiscal drivers, particularly following the post-pandemic fiscal expansion, thereby validating the Fiscal Theory of the Price Level and suggesting that effective monetary normalization requires coordinated fiscal consolidation.