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What Drives Persistently High Inflationary Pressures In Vietnam? Some Evidence From The New Keynesian Curve Framework

Author

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  • Xuan-Hoa Nghiem

    (Foreign Trade University)

  • Seema Narayan

Abstract

In this study, we revisit the inflation process in Vietnam through the New Keynesian Phillips Curve (NKPC) model. We use monthly and quarterly data frequencies to track the forces driving inflationary pressures up to a quarter. Interest rate, an important determinant of inflation, is often found to give theoretically inconsistent result. Hence, we examine different interest rates, including, the central bank policy rate, lending interest rate and one-month interbank interest rates. Further, there is no unified approach to measuring the output gap – an important variable of the model - in the literature which may affect the results. Therefore, in this study, output gap is measured using two different approaches, namely, the linear trend model and the Hodrick-Prescott (HP) filter to see whether different measurement approaches matter for the signs and significance of this variable. Our key findings show that while the effects of interest rate vary by its type, measurement of output gap does not matter for the determination of inflation in Vietnam. What matters is whether the inflation model is quarterly or monthly. We explain the main determinants of inflation and provide some policy implications in the paper.

Suggested Citation

  • Xuan-Hoa Nghiem & Seema Narayan, 2021. "What Drives Persistently High Inflationary Pressures In Vietnam? Some Evidence From The New Keynesian Curve Framework," Bulletin of Monetary Economics and Banking, Bank Indonesia, vol. 24(4), pages 517-540, December.
    • Handle: RePEc:idn:journl:v:24:y:2021:i:4b:p:517-540
    DOI: https://doi.org/10.21098/bemp.v24i4.1766
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    Cited by:

    1. Khamdan Rifa'i, 2023. "The Economic Impact of the US Unconventional Monetary Policy, Global Commodity Shocks, and Oil Price Shocks on ASEAN 3," International Journal of Energy Economics and Policy, Econjournals, vol. 13(5), pages 616-624, September.
    2. Afees A. Salisu & Elias A. Udeaja & Silva Opuala-Charles, 2022. "Central Bank Independence And Price Stability Under Alternative Political Regimes: A Global Evidence," Bulletin of Monetary Economics and Banking, Bank Indonesia, vol. 25(2), pages 155-172, August.

    More about this item

    Keywords

    Inflation; Interest rate; Exchange rate; Output gap;
    All these keywords.

    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy

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