Exchange Rates, Inflation, and GDP in Indonesia: A New Perspective on Islamic Mutual Funds as an Intervening Factor

Abstract

Introduction: Gross domestic product (GDP) is an indicator used to determine the country's economic situation shown in a certain period. The success of a country's economic growth can be seen from the country's GDP level. Research Methods: This research aims to test and analyze the influence of exchange rates and inflation on GDP in Indonesia through the mediation of Islamic mutual funds. This research uses quantitative methods using time series data, namely quarterly data for 2016-2023. Results: The results shows that the exchange rate has a positive and significant effect on GDP, inflation and Islamic mutual funds have a positive and insignificant effect on GDP, the exchange rate has a positive and significant effect on Islamic mutual funds, inflation has a negative and significant effect on Islamic mutual funds, and although mutual funds have the potential to increase GDP through investment, exchange rate depreciation and high inflation will still have a negative impact on the economy as a whole. Conclusion: Exchange rates and inflation play a crucial role in driving economic growth and the development of Islamic mutual funds. The government needs to maintain exchange rate stability through monetary and fiscal policies, as well as implement inflation control measures to preserve the public's purchasing power and investment interest.

Full text

Widya Mirza Sabrina, Maulida Nurhidayati, Raisha Salisa Ahmad
JoIE: Journal of Islamic Economics | 63
Exchange Rates, Inflation, and GDP in Indonesia: A New Perspective
on Islamic Mutual Funds as an Intervening Factor
Widya Mirza Sabrina1, Maulida Nurhidayati2, Raisha Salisa Ahmad3
1 Institut Agama Islam Negeri Ponorogo, Indonesia, widyamirzaa@gmail.com
2 Institut Agama Islam Negeri Ponorogo, Indonesia, nurhidayati@iainponorogo.ac.id
3 Pamukkale University, Turkey, reshaahmadd@gmail.com
Article Info
Abstract
Article history:
Received January 21, 2025
Revised April 24, 2025
Accepted April 24, 2025
Available online, April 25, 2025
Introduction: Gross domestic product (GDP) is an
indicator used to determine the country's
economic situation shown in a certain period. The
success of a country's economic growth can be
seen from the country's GDP level. Research
Methods: This research aims to test and analyze
the influence of exchange rates and inflation on
GDP in Indonesia through the mediation of Islamic
mutual funds. This research uses quantitative
methods using time series data, namely quarterly
data for 2016-2023. Results: The results shows
that the exchange rate has a positive and
significant effect on GDP, inflation and Islamic
mutual funds have a positive and insignificant
effect on GDP, the exchange rate has a positive
and significant effect on Islamic mutual funds,
inflation has a negative and significant effect on
Islamic mutual funds, and although mutual funds
have the potential to increase GDP through
investment, exchange rate depreciation and high
inflation will still have a negative impact on the
economy as a whole. Conclusion: Exchange rates
and inflation play a crucial role in driving economic
growth and the development of Islamic mutual
funds. The government needs to maintain
exchange rate stability through monetary and
fiscal policies, as well as implement inflation
control measures to preserve the public's
purchasing power and investment interest.
*Corresponding author email:
widyamirzaa@gmail.com
Keywords:
Exchange rate, inflation, Islamic
mutual funds, GDP
DOI: 10.21154/joie.v5i1.10344
Page: 63-77
JoIE with CC BY 4.0. Copyright © 2025, the
author(s)
JoIE: Journal of Islamic Economics
P-ISSN 2807-7377, E-ISSN 2807-7091
Volume 5 Issue 1, January - June 2025
https://jurnal.iainponorogo.ac.id/index.php/joie

Widya Mirza Sabrina, Maulida Nurhidayati, Raisha Salisa Ahmad
JoIE: Journal of Islamic Economics | 64
INTRODUCTION
One of the key indicators in assessing the development and economic growth of a
country is economic growth. Economic growth is the main indicator that reflects how far
society has succeeded in generating income through economic activities over a certain period
of time. The success of a country's economic growth can be seen from the increase in the
country’s Gross Domestic Product (GDP). A country can experience increased economic
growth if there is an increase in GDP (Drajat, 2023). Lincolin Arsyad also explained that GDP
is an indicator used to understand a country's economic situation during a specific period. The
value of GDP provides an overview of how well a country can manage and utilize the resources
it possesses (Arsyad, 2014). Gross Domestic Product (GDP) is the total value added produced
by all business units in a country during a specific period.
Figure 1. Development of All Variables from 2016-2023
(a) GDP (Trillions IDR)
(b) Exchange Rate (IDR)
(c) Ination (%)
(d) Islamic Mutual Funds (Trillions
IDR)
Source: Data processed, 2024
The exchange rate reflects the amount of domestic currency needed to obtain one
unit of foreign currency. This exchange rate or currency rate will vary between countries
(Sukirno, 2002). As explained in the Mundell-Fleming theory, there is a negative relationship
between the exchange rate and economic growth, where the higher the exchange rate, the
lower the net export, which in turn reduces the output and leads to a decline in GDP (Mankiw,
2003).
Figure 1 shows that the movements of the exchange rate and GDP from 2016-2023
exhibit opposing patterns, as seen in the first to third quarters of 2021. However, there are
also periods where both move in the same direction, as in 2022. This indicates an unclear
pattern in the relationship between the exchange rate and GDP. This statement is supported
2,200,000
2,400,000
2,600,000
2,800,000
3,000,000
3,200,000
2016 2017 2018 2019 2020 2021 2022 2023
GDP
13,000
13,500
14,000
14,500
15,000
15,500
16,000
2016 2017 2018 2019 2020 2021 2022 2023
ER
1
2
3
4
5
6
2016 2017 2018 2019 2020 2021 2022 2023
INF
0
10,000
20,000
30,000
40,000
50,000
60,000
70,000
80,000
2016 2017 2018 2019 2020 2021 2022 2023
IMF

Widya Mirza Sabrina, Maulida Nurhidayati, Raisha Salisa Ahmad
JoIE: Journal of Islamic Economics | 65
by research (Sukardi & Hidayah, 2021) which found that the exchange rate variable has a
positive and significant impact on economic growth as measured by GDP. Meanwhile, (Putra,
2022) showed that the exchange rate variable has a negative and insignificant impact on
economic growth as measured by GDP.
In addition to the exchange rate, another factor influencing GDP is the inflation rate
of a country. A country with a high and unstable inflation rate will lead to economic instability,
resulting in a continuous rise in the prices of goods and services and worsening the poverty
rate in Indonesia (Salim, Fadila, & Purnamasari, 2021). Figure 1 shows that there are
movements in inflation and GDP that display opposing patterns, as seen in the second to
fourth quarters of 2023. However, there are also periods where both move in the same
direction, such as in 2022. This indicates an unclear pattern in the relationship between
inflation and GDP. This theoretical statement is supported by research (Hakim, 2023), (Salim
et al., 2021), and (Kartika & Pasaribu, 2023) which states that the inflation variable has a
positive and significant impact on economic growth as measured by GDP. Meanwhile,
research by (Simanungkalit, 2020) explains that inflation has a negative impact on economic
growth in Indonesia.
The investment sector is another factor that also influences GDP growth in Indonesia.
The development of the capital market today shows significant improvement, as evidenced
by the increasing variety of capital market instruments, both Islamic and conventional
(Auliyatussaa’dah, Handayani, & Farekha, 2021). Islamic mutual funds are one of the
instruments in the Islamic capital market that has experienced rapid growth compared to
conventional mutual funds. Furthermore, Islamic mutual fund instruments are supported by
strong regulations, such as the DSN-MUI Fatwa No. 20 of 2001, which regulates Islamic mutual
funds, and the Financial Services Authority (OJK) which monitors and oversees Islamic mutual
fund transactions (Syarifuddin, 2022).
Research by (Dwi Nurhidayah, Amalia Nuril Hidayati, & Muhammad Alhada Fuadilah
Habib, 2022) states that Islamic mutual funds have a positive and significant impact on
economic growth in Indonesia. Additionally, (Auliyatussaa’dah et al., 2021) in their research
also mentions that Islamic mutual funds have a significant impact on Indonesia's economic
growth. On the other hand, research by (Melati & Nurcahya, 2022) shows that Islamic mutual
funds do not have an impact on Indonesia's economic growth. Therefore, more precise
handling and education on Islamic investment literacy are needed to encourage an increase
in Indonesia's economic growth.
Exchange rates and inflation often have a significant impact on asset prices and
people’s purchasing power, which in turn can affect investment decisions in Islamic mutual
funds. Meanwhile, GDP reflects the health of the economy which can affect the performance
of sectors involved in mutual funds. This study makes a novel contribution by integrating
these macroeconomic factors in the context of Islamic mutual funds, which may not have
been widely discussed in the existing literature. Specifically, this study explores how these
aspects interact with each other and provides deeper insights into the volatility and potential

Widya Mirza Sabrina, Maulida Nurhidayati, Raisha Salisa Ahmad
JoIE: Journal of Islamic Economics | 66
returns of investments in financial instruments that are compliant with Sharia principles,
providing a more holistic perspective for investors and economic policymakers.
Based on the data, previous research, and discussion of the exchange rate, inflation,
Islamic mutual funds, and GDP, the researcher is interested in choosing this title to examine
the effect of the exchange rate and inflation on GDP in Indonesia with Islamic mutual funds
as an intervening variable. In this research, Indonesia is chosen as the location due to its
fluctuating economy in recent years.
RESEARCH METHOD
Figure 2. Research Framework
Source: Prepared by Author, 2024
This study uses a quantitative approach that aims to test theories and gain an
understanding of the causal relationship between the variables studied. The framework in
Figure 2 shows the influence of exchange rates and inflation on GDP in Indonesia with the
intervening role of Islamic mutual funds. Within this framework, the exchange rate (X1) and
inflation (X2) are independent variables, GDP (Y) is a bound variable, and Islamic mutual funds
(Z) are intervening variables. The type of data used in this study is secondary data in the form
of a time series. The data collection technique in this study uses the documentation method.
The data sources used were obtained from the official websites of BPS (Central Statistics
Agency), OJK (Financial Services Authority), and Bank Indonesia, with quarterly data covering
the period from 2016 to 2023.
The data analysis used in this study involves testing hypotheses using path analysis.
Before conducting path analysis, a classical assumption test must first be performed, then
multiple linear regression must be carried out to test the relationship between the variables

Widya Mirza Sabrina, Maulida Nurhidayati, Raisha Salisa Ahmad
JoIE: Journal of Islamic Economics | 67
involved. After that, a partial test was carried out to determine the significance of the direct
influence of independent variables on dependent variables, and a Sobel test was carried out
to find out whether the influence of independent variables on dependent variables through
mediator variables was statistically significant (Ghozali, 2013).
RESULT AND DISCUSSION
Classical Assumption Test
The classical assumption test aims to ensure that the regression model used provides
a correct and accurate relationship between the variables being studied. In this research, the
classical assumption tests used include the Normality Test, Multicollinearity Test,
Autocorrelation Test, and Heteroscedasticity Test (Ghozali, 2013).
1. Normality test
Table 1. Results of the Normality Test
Equation
Unstandardized Residual
1
Asymp. Sig. (2-tailed)
0.053
2
Asymp. Sig. (2-tailed)
0.200
Source: Processed Data, SPSS 23, 2024
Table 1 shows equation 1 has a signicant value of 0.053 > 0.05 and
equation 2 has a signicant value of 0.200>0.05. Therefore, the regression model
on equation 1 and equation 2 has residuals that are normally distributed.
2. Multicollinearity Test
Table 2. Results of the Multicollinearity Test
Equation
Model
Collinearity Statistics
Tolerance
VIF
1
LNZ
0.34
2.96
LNX1
0.43
2.32
LNX2
0.65
1.54
2
LNX1
0.99
1.01
LNX2
0.99
1.01
Source: Processed Data, SPSS 23, 2024
Table 2 shows that the exchange rate, inaon, and Islamic mutual fund
variables on equaon 1 have tolerance values greater than 0.10, indicang that there
is no mulcollinearity among the independent variables. For equaon 2, shows that
the exchange rate and inaon variables have tolerance values greater than 0.10. This
indicates that there is no correlaon between the independent variables, and
regression model is free from mulcollinearity.

Widya Mirza Sabrina, Maulida Nurhidayati, Raisha Salisa Ahmad
JoIE: Journal of Islamic Economics | 68
3. Autocorrelation Test
Table 3 shows the results of the autocorrelation test for equation 1, which
indicate a value of 1.03. For equation 2, the results of the autocorrelation test,
which indicate a value of 0.78 in the Durbin-Watson column. This suggests that
the regression model is free from autocorrelation, as the value lies between -2 and
+2.
Table 3. Results of the Autocorrelation Test
Equation
Durbin-Watson
1
1.03
2
0.78
Source: Processed Data, SPSS 23, 2024
4. Heteroscedasticity Test
Table 4. Results of the Heteroscedasticity Test
Equation
Obs*R-squared
Prob. Chi-Square(3)
1
6.26
0.09
2
1.93
0.38
Source: Processed Data, Eviews 12, 2024
Table 4 for equaon 1 shows that the Prob. Chi-Square value is 0.09 > 0.05 and
equaon 2 has Prob. Chi-Square value of 0.38 > 0.05. Therefore, it can be concluded
that the regression model does not exhibit heteroscedascity.
Multiple Linear Regression
Table 5. Multiple Linear Regression
Equation
Model
Unstandardized
Coefficients
Standardize
d
Coefficients
t
Sig.
B
Std. Error
Beta
(Constant)
2.89
1.95
1.48
0.15
1
LNZ
0.04
0.02
0.25
1.65
0.11
LNX1
1.20
0.22
0.71
5.39
0.00
LNX2
0.02
0.02
0.09
0.41
0.41
(Constant)
-58.75
11.37
-5.17
0.00
2
LNX1
7.30
1.19
0.66
6.15
0.00
LNX2
-0.60
0.15
-0.43
-3.93
0.00
Source: Processed Data, SPSS 23, 2024
1. Multiple Linear Regression Equation 1

Widya Mirza Sabrina, Maulida Nurhidayati, Raisha Salisa Ahmad
JoIE: Journal of Islamic Economics | 69
The results of the multiple linear regression analysis for Equation 1 were conducted to
examine the effects of the exchange rate (X1), inflation (X2), and Islamic mutual funds
(Z) on GDP (Y) in Indonesia from 2016 to 2023.
The beta coefficient for the exchange rate variable (X1) is 0.71. This means that
for every 1% increase in the exchange rate (X1), the GDP (Y) will increase by 0.71%.
Conversely, for every 1% decrease in the exchange rate (X1), the GDP (Y) will decrease
by 0.71%. This condition assumes that other variables remain constant.
The beta coefficient for the inflation variable (X2) is 0.09. This means that for
every 1% increase in inflation (X2), GDP (Y) will increase by 0.09%. Conversely, for
every 1% decrease in inflation (X2), GDP (Y) will decrease by 0.09%. This condition
assumes that other variables remain constant.
The beta coefficient for the Islamic mutual fund variable (Z) is 0.25. This means
that for every 1% increase in Islamic mutual funds (Z), GDP (Y) will increase by 0.25%.
Conversely, for every 1% decrease in Islamic mutual funds (Z), GDP (Y) will decrease
by 0.25%. This condition assumes that other variables remain constant.
2. Multiple Linear Regression Equation 2
The results of the multiple linear regression analysis for Equation 2 were conducted to
examine the effects of the exchange rate (X1) and inflation (X2) on Islamic mutual
funds (Z) from 2016 to 2023.
The beta coefficient for the exchange rate variable (X1) is 0.66. This means that
for every 1% increase in the exchange rate (X1), Islamic mutual funds (Z) will increase
by 0.66%. Conversely, for every 1% decrease in the exchange rate (X1), Islamic mutual
funds (Z) will decrease by 0.66%. This condition assumes that other variables remain
constant.
The beta coefficient for the inflation variable (X2) is -0.43. This means that for
every 1% increase in inflation (X2), Islamic mutual funds (Z) will decrease by 0.43%.
Conversely, for every 1% decrease in inflation (X2), Islamic mutual funds (Z) will
increase by 0.43%. This condition assumes that other variables remain constant.
t-Test
Hypothesis testing using the t-test is conducted to determine the significance of the direct
effects of the exchange rate (X1), inflation (X2), and Islamic mutual funds (Z) on GDP (Y) in
Indonesia.
Table 6. Results of Partial t-Test
Equation
Model
Unstandardized
Coefficients
Standardized
Coefficients
t
Sig.
B
Std. Error
Beta
(Constant)
2.89
1.95
1.48
0.15
1
LNZ
0.04
0.02
0.25
1.65
0.11
LNX1
1.20
0.22
0.71
5.39
0.00
LNX2
0.02
0.02
0.09
0.83
0.41

Widya Mirza Sabrina, Maulida Nurhidayati, Raisha Salisa Ahmad
JoIE: Journal of Islamic Economics | 70
Equation
Model
Unstandardized
Coefficients
Standardized
Coefficients
t
Sig.
B
Std. Error
Beta
(Constant)
-58.75
11.37
-5.17
0.00
2
LNX1
7.30
1.19
0.67
6.15
0.00
LNX2
-0.60
0.15
-0.43
-3.93
0.00
Source: Processed Data, SPSS 23, 2024
1. Partial Test (t-Test) Equation 1
The results of the t-test for Equation 1 were conducted to examine the effects of the
exchange rate (X1), inflation (X2), and Islamic mutual funds (Z) on GDP (Y) in Indonesia
from 2016 to 2023.
a. Effect of Exchange Rate (X1) on GDP (Y)
The significance value for the exchange rate variable with respect to GDP is
0.00 < 0.05 (5%) meaning there is an effect of the exchange rate on GDP in
Indonesia from 2016 to 2023.
b. Effect of Inflation (X2) on GDP (Y)
The significance value for the inflation variable with respect to GDP is 0.41 >
0.05 (5%) meaning there is no effect of inflation on GDP in Indonesia from 2016
to 2023.
c. Effect of Islamic Mutual Funds (Z) on GDP (Y)
The significance value for the Islamic mutual funds variable with respect to
GDP is 0.11 > 0.05 (5%) meaning there is no effect of Islamic mutual funds on
GDP in Indonesia from 2016 to 2023.
2. Partial Test (t-Test) Equation 2
The results of the t-test for Equation 2 were conducted to examine the effects of the
exchange rate (X1) and inflation (X2) on Islamic mutual funds (Z) from 2016 to 2023.
a. Effect of Exchange Rate (X1) on Islamic Mutual Funds (Z)
The significance value for the exchange rate variable with respect to Islamic
mutual funds is 0.00 < 0.05 (5%) meaning there is an effect of the exchange
rate on Islamic mutual funds in Indonesia from 2016 to 2023.
b. Effect of Inflation (X2) on Islamic Mutual Funds (Z)
The significance value for the inflation variable with respect to Islamic mutual
funds is 0.00 < 0.05 (5%) meaning there is an effect of inflation on Islamic
mutual funds in Indonesia from 2016 to 2023.
Sobel Test
The Sobel test is a method used to examine the effect of an independent variable on
a dependent variable through a mediator variable. The Sobel test in this research was
conducted using the application Calculation for the Sobel Test: An Interactive Calculation Tool
for Mediation Test.
1. Effect of Exchange Rate on GDP through Islamic Mutual Funds

Widya Mirza Sabrina, Maulida Nurhidayati, Raisha Salisa Ahmad
JoIE: Journal of Islamic Economics | 71
Figure 3. Results of Sobel Test on the Effect of Exchange Rate on GDP
through Islamic Mutual Funds
Source: Data processed through https://quantpsy.org/sobel/sobel.htm, 2024
Based on the calculations, the obtained p-value is 0.11 > 0.05. This indicates that
Islamic mutual funds do not mediate the effect of the exchange rate on GDP.
Therefore, Islamic mutual funds do not mediate the effect of the exchange rate on
GDP in Indonesia from 2016 to 2023.
2. Effect of Inflation on GDP through Islamic Mutual Funds
Figure 4. Results of Sobel Test on the Effect of Inflation on GDP through
Islamic Mutual Funds
Source: Data processed through https://quantpsy.org/sobel/sobel.htm, 2024
Based on the calculations, the obtained p-value is 0.13 > 0.05. This indicates that
Islamic mutual funds do not mediate the effect of inflation on GDP. Therefore, Islamic
mutual funds do not mediate the effect of inflation on GDP in Indonesia from 2016 to
2023.
R² Test
The coefficient of determination (R²) is used to show how well the regression model explains
the variation in the dependent variable. The value of R² ranges from zero to one. A value of
R² close to one indicates that the independent variables can almost completely explain the
variation in the dependent variable.
Table 7. Results of R² Test for Equation 1
Equation
Model
R
R
Square
Adjusted R
Square
Std. Error of the
Estimate
1
1
0.89a
0.79
0.77
0.04
2
1
0.81a
0.66
0.64
0.33
Source: Processed Data, SPSS 23, 2024
1. Coefficient of Determination Test for Equation 1
Table 7 shows that the R² value is 0.79. Therefore, the exchange rate, inflation, and
Islamic mutual funds variables can explain 79% of the variation in GDP in Indonesia,
while the remaining 21% is explained by other variables outside the scope of this
research.

Widya Mirza Sabrina, Maulida Nurhidayati, Raisha Salisa Ahmad
JoIE: Journal of Islamic Economics | 72
2. Coefficient of Determination Test for Equation 2
Table 7 shows that the R² value is 0.66. Therefore, the exchange rate and inflation
variables can explain 66% of the variation in Islamic mutual funds, while the remaining
34% is explained by other variables outside the scope of this research.
DISCUSSION
The Effect of Exchange Rates on Gross Domestic Product (GDP) in Indonesia
The SPSS test results show that exchange rates have a significant positive effect on
GDP. This means that changes in the exchange rate can contribute positively and significantly
to the growth of GDP in Indonesia during the period. There are several conditions that cause
a depreciating exchange rate to increase a country's GDP, one of which is export activities.
When a country's currency depreciates, the goods and services from that country become
cheaper for consumers in other countries. As a result, Indonesian products become more
attractive to foreign buyers, which can drive an increase in export demand (Sukardi &
Hidayah, 2021).
However, a depreciating exchange rate does not always have a positive impact on
GDP; it can also bring risks. Currency depreciation can affect all sectors in Indonesia, such as
declining investor confidence in investing in Indonesia, rising prices of imported goods, and
massive inflation. The government needs to conduct a thorough evaluation and implement
policies to limit imports in order to help boost demand for local products. This can support
GDP growth and contribute to the strengthening of the currency. This result is consistent with
(Sukardi & Hidayah, 2021) research, which stated that exchange rates have a positive and
significant effect on economic growth. The government needs to conduct a thorough
evaluation and provide policies to limit imports to help increase demand for local products.
This can support GDP growth and contribute to strengthening the exchange rate.
The Effect of Inflation on Gross Domestic Product (GDP) in Indonesia
The SPSS test results show that inflation has a positive but insignificant effect on GDP.
This means that inflation can contribute positively but insignificantly to GDP growth in
Indonesia during the period. One of the causes of economic instability in Indonesia is the
COVID-19 pandemic. Many economic sectors have been affected, such as tourism, trade,
manufacturing, and others. Social restrictions, decreased purchasing power, and supply chain
disruptions have caused price pressures to be relatively lower, leading to a decrease in
inflation (Kartika & Pasaribu, 2023). This coincides with a decrease in GDP during the COVID-
19 pandemic. Social restrictions and lockdown policies to curb the spread of the virus also
played a major role in lowering inflation and GDP levels. Many companies conducted layoffs
during the pandemic, resulting in lower household incomes and purchasing power. This led
to a decrease in consumer purchasing power, which impacted the reduction in GDP in
Indonesia (Salim et al., 2021).
In the t-test results, inflation has an insignificant effect on GDP. "Insignificant" means
that the effect of inflation on GDP growth is not large enough or does not produce a
meaningful change. If one looks at the data, inflation in Indonesia during the 2016-2023

Widya Mirza Sabrina, Maulida Nurhidayati, Raisha Salisa Ahmad
JoIE: Journal of Islamic Economics | 73
period remained within the normal range. It is important for the government and central bank
to manage inflation carefully, maintaining a balance between economic growth and price
stability to ensure that the growth achieved is sustainable and does not harm the public. This
result is consistent with the research of (Kartika & Pasaribu, 2023), (Salim et al., 2021), and
(Hakim, 2023) who in their research stated that inflation has a positive but insignificant effect
on economic growth, as measured by GDP. It is important for governments and central banks
to manage inflation carefully, maintaining a balance between economic growth and price
stability to ensure that the growth achieved is sustainable and does not harm society.
The Effect of Islamic Mutual Funds on Gross Domestic Product (GDP) in Indonesia
The SPSS test results show that Islamic mutual funds have a positive but insignificant
effect on GDP. This means that an increase in Islamic mutual funds can contribute positively
but insignificantly to GDP growth in Indonesia during the period. The increase in public
investment through Islamic mutual funds will increase the net asset value (NAV) of the mutual
fund, thereby impacting the growth of the national economy.
The development of Islamic mutual funds from 2016 to 2023 shows rapid growth.
Investors find that managing Islamic mutual funds is relatively easy, which increases public
interest in investing in these funds. When Islamic mutual funds increase, the rate of economic
growth also increases (Fathurrahman & Al-Islami, 2023). However, the effect of Islamic
mutual funds on GDP is positive but not significant. "Not significant" means that the
contribution made by Islamic mutual funds to the increase in GDP is not large enough or does
not produce a meaningful change. Therefore, to significantly increase GDP, investments
should come from other investment instruments. Thus, Islamic mutual funds cannot be
considered the primary instrument for driving GDP growth. This result is consistent with the
research conducted by (Dwi Nurhidayah et al., 2022) and (Nurwahida, Sugianto, & Jannah,
2022) which states that Islamic mutual funds have a positive but insignificant effect on
economic growth, as measured by GDP.
Policymakers need to push regulations that support the development of islamic
mutual funds, expand islamic financial literacy, and build transparent and inclusive
infrastructure. On the other hand, investors, both individuals and institutions, are expected
to increase their understanding and participation in islamic instruments that comply with
halal and sustainable principles. Financial institutions also have an important role through
product innovation, service digitalization, and providing wider and more transparent access
for the community.
The Effect of Exchange Rates on Islamic Mutual Funds
The SPSS test results show that exchange rates have a significant positive effect on
Islamic mutual funds. This means that changes in exchange rates can contribute positively and
significantly to Islamic mutual funds during the period. When the rupiah depreciates, the
value of money decreases, leading to a reduced purchasing power. As the rupiah weakens,
people tend to shift their funds to more profitable investments, such as Islamic mutual funds.
Islamic mutual funds are considered more attractive because they offer more stable potential
returns compared to keeping money in rupiah, which is decreasing in value. Investors

Widya Mirza Sabrina, Maulida Nurhidayati, Raisha Salisa Ahmad
JoIE: Journal of Islamic Economics | 74
diversify, meaning they spread their funds across different types of investments to reduce
risks. In this case, people or investors tend to choose various investment products, such as
Islamic mutual funds, to minimize potential losses from the depreciation of the rupiah
(Chairani, 2020). This research aligns with the studies of (Priyandini & Wirman, 2021) and
(Ilyas & Shofawati, 2020), which state that exchange rates have a positive and significant
effect on the net asset value (NAV) of Islamic protected mutual funds in Indonesia. This is due
to economic uncertainty caused by high inflation, which increases investment risks.
The Financial Services Authority (OJK) and the government need to implement
mutually supportive policies to maintain exchange rate stability and strengthen the islamic
mutual fund market in Indonesia. OJK can strengthen regulations governing transparency,
investor protection, and exchange rate risk management while encouraging the development
of other Sharia investment products. The government, on the other hand, must focus on
stable monetary policy through Bank Indonesia, healthy balance of payments management,
and fiscal policy that supports long-term economic growth.
The Effect of Inflation on Islamic Mutual Funds
The SPSS test results show that inflation has a significant negative effect on Islamic
mutual funds. This means that changes in inflation can contribute negatively and significantly
to Islamic mutual funds during the period. When inflation occurs, people's purchasing power
tends to decrease, as the prices of goods and services rise. This causes people to feel that
their money can no longer buy as much as before, so they focus more on fulfilling their basic
needs. As a result, consumer behavior changes, with many choosing to save their money (Sari,
Isyanto, & Lukita, 2023). Inflation has a negative effect on Islamic mutual funds, meaning that
inflation will reduce the net asset value (NAV) of Islamic mutual funds. As a result, inflation
harms all parties, including issuers, because high inflation will lead to higher commodity
prices. Furthermore, in an inflationary environment, people are reluctant to invest due to the
uncertainty caused by price fluctuations. Many people are concerned that their investment
value might erode due to inflation, making the potential returns from the investment not
worth the risks involved (Sari et al., 2023).
Thus, inflation not only affects consumption behavior but also investment behavior.
This can reduce the amount of funds available for investment in financial markets, which
ultimately impacts the performance of sectors of the economy dependent on investments,
including the stock market, mutual funds, and other investment instruments (Priyandini &
Wirman, 2021). This result is consistent with the research by (Sari et al., 2023) and (Priyandini
& Wirman, 2021), which state that inflation has a negative and significant effect on the NAV
of Islamic mutual funds in Indonesia. It is important for the government to control inflation
through appropriate monetary policies, such as interest rate adjustments and market
interventions to maintain price stability. Financial institutions can offer investment
instruments that are more resistant to inflation, such as real asset-based mutual funds or
inflation-protected investments, and provide clear information so that investors can make
more informed decisions. Stable monetary policies and innovative investment instruments
will help maintain investment interest even amid high inflation.

Widya Mirza Sabrina, Maulida Nurhidayati, Raisha Salisa Ahmad
JoIE: Journal of Islamic Economics | 75
The Effect of Exchange Rates on Gross Domestic Product (GDP) in Indonesia Through Islamic
Mutual Funds
The test results show that Islamic mutual funds do not mediate the effect of exchange
rates on GDP in Indonesia. This finding shows that Islamic mutual funds do not directly
mediate or reduce the impact of exchange rate fluctuations on the economy. A currency
exchange rate can be influenced by various factors, including monetary policy, inflation, and
supply-demand conditions in global markets (Rizal, David, Shabri, & Nengsih, 2021). Exchange
rate fluctuations are typically managed through macroeconomic policies, such as monetary
policy, fiscal policy, or government market interventions.
Although Islamic mutual funds are one of the investment instruments based on Islamic
principles and attract many investors, this instrument has not been proven to directly stabilize
the impact of exchange rate fluctuations on the economy as a whole. Therefore, to reduce
the negative impact of exchange rate fluctuations on GDP, more effective investment
instruments are needed to mitigate or control the effects of exchange rate changes on the
economy overall (Priyandini & Wirman, 2021).
The government and OJK must also strengthen monetary and fiscal policies, including
responsive interest rate management and sufficient foreign exchange reserves to stabilize the
exchange rate. In addition, diversification of investment portfolios for investors needs to be
encouraged to mitigate the impact of exchange rate fluctuations. The government must also
maintain macroeconomic stability, with a prudent fiscal policy and increase education and
transparency for investors regarding exchange rate risk management. This policy is expected
to create a more stable financial market and support sustainable economic growth.
The Effect of Inflation on Gross Domestic Product (GDP) in Indonesia Through Islamic
Mutual Funds
The test results show that Islamic mutual funds are unable to mediate the effect of
inflation on GDP in Indonesia. This finding indicates that Islamic mutual funds cannot directly
reduce or stabilize the impact of inflation on GDP in Indonesia. Inflation is an economic
phenomenon influenced by various macroeconomic factors, such as monetary and fiscal
policies and global market conditions (Hafidz Meiditambua Saefulloh, Rizah Fahlevi, & Alfa
Centauri, 2023). Although Islamic mutual funds are a popular investment instrument, there is
no direct relationship between their performance and their ability to mitigate the impact of
inflation on Indonesia’s overall economy. This indicates that, while Islamic mutual funds can
provide benefits for investors, this instrument is not effective enough to address the inflation
issues that can affect national economic growth. Therefore, other investment instruments
may be needed to better help mitigate or stabilize the effects of inflation on GDP (Hidayat,
2011).
The government and OJK need to maintain macroeconomic stability to support
sustainable GDP growth and reduce the impact of inflation on the Indonesian economy by
implementing policies that include the development of investment instruments that are more

Widya Mirza Sabrina, Maulida Nurhidayati, Raisha Salisa Ahmad
JoIE: Journal of Islamic Economics | 76
effective in dealing with inflation, such as inflation-protected mutual funds or real asset-based
products.
CONCLUSION
The research findings indicate that exchange rates play a crucial role in driving
economic growth (GDP) and have a significant impact on the development of Islamic mutual
funds. Therefore, the government needs to maintain exchange rate stability through
monetary and fiscal policies to support the investment climate, particularly in Sharia-
compliant instruments. Since inflation negatively affects Islamic mutual funds, more effective
inflation control policies are needed to preserve the public’s purchasing power and
investment interest. For investors, it is important to consider the dynamics of exchange rates
and inflation when making investment decisions, as well as to improve literacy regarding
Sharia-compliant financial products. Meanwhile, financial institutions need to develop
marketing strategies and product innovations that can attract investor interest, even though
the direct impact of Islamic mutual funds on GDP has not yet been significant. Close
collaboration among stakeholders is required to strengthen the contribution of the Islamic
finance sector to the national economy.
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