The main purpose of this study is to observe the effects of the crude oil price shocks on Indonesia stock market performance to complete the literature on Indonesia stock market behavior. We examined the effects of the crude oil price shocks on Indonesia stock market performance through the cointegration relationship mechanism between IHSG and the crude oil price and between IHSG and the global stock market indices. The Brent crude oil price data taken from FRED economic data, the Federal Reserve Bank of St.Lois, and the stock market indices data taken from yahoo.finance.com. By using a vector error correction model (VECM) approach, we found that IHSG has significant long-run relationships with the crude oil price and the global stock market indices. This finding indicates that the effects of the crude oil price shocks on IHSG transmitted directly through the cointegration mechanism between IHSG and the crude oil price, and indirectly through the cointegration mechanism between IHSG and the global stock market indices.

This study aims to investigate the effect of world oil price changes on inflation in Indonesia. We used a nonparametric regression approach that never been employed in previous studies, both domestically and internationally. This study shows that the second-order Epanechnikov kernel function is statistically significant in explaining the effect of world oil price changes on Indonesia's inflation. We found that the world oil price changes had a lower effect on Indonesia's inflation when its price below USD 100 per barrel, and its effect became higher when its price above USD 100 per barrel. These results have important implications for Bank Indonesia and Indonesia's government in response to the world oil price changes. The policies that aimed at reducing the effect of world oil price changes on inflation in Indonesia should consider the world oil price level.JEL Classification: A12, B26, C14, E31, F29, F62How to Cite:Darmawan, I., Siregar, H., Hakim, D.B., & Manurung, A.H.. (2021). World Oil Price Changes and Inflation in Indonesia: A Nonparametric Regression Approach. Signifikan: Jurnal Ilmu Ekonomi, 10(1), 161-176. https://doi.org/10.15408/sjie.v10i1.19010.