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The long-run analysis of monetary policy transmission channels on inflation: a VECM approach

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  • Ngan Tran

Abstract

In case of small open economy, the conduct of monetary policy has faced obstacles to achieve primary goals of price stability, due to high vulnerability to external shocks and weak policy frameworks. Therefore, this paper aims to analyse the effectiveness of monetary policy transmission channels in restraining inflation in case of Vietnam for 2001-2015. The use of a Vector Error Correction Model yields evidence that credit growth is the key determinant of high inflation. Additionally, the results suggest the interest rate channel has a perverse effect on inflation in the long run, which means that the inflation rate increases with the policy rate. There is also significant short-run causal relationship from credit growth to inflation, and from the policy rate to inflation. However, empirical results fail to confirm the existence of relationship between the exchange rate channel and inflation in both short run and long run.

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  • Ngan Tran, 2018. "The long-run analysis of monetary policy transmission channels on inflation: a VECM approach," Journal of the Asia Pacific Economy, Taylor & Francis Journals, vol. 23(1), pages 17-30, January.
    • Handle: RePEc:taf:rjapxx:v:23:y:2018:i:1:p:17-30
    DOI: 10.1080/13547860.2018.1429199
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    Cited by:

    1. Petrovska Magdalena & Tonovska Jasna & Nikolov Miso & Sulejmani Artan, 2022. "Evaluating Monetary Policy Effectiveness in North Macedonia: Evidence from a Bayesian Favar Framework," South East European Journal of Economics and Business, Sciendo, vol. 17(2), pages 67-82, December.
    2. Abdullah, Muhammad & Gul, Zarro & Waseem, Faiza & Islam, Tanweer, 2021. "The State of Pakistan’s Economy and the Ineffectiveness of Monetary Policy," MPRA Paper 112678, University Library of Munich, Germany.
    3. Fida Hussain & Fayyaz Hussain & Kalim Hyder, 2022. "Monetary Policy Effectiveness in Pakistan:An In-depth Analysis of Four Transmission Channels," SBP Working Paper Series 109, State Bank of Pakistan, Research Department.
    4. Dennij Mandeij, 2020. "Determination of Equilibrium Exchange Rate Rupiah Against US Dollar and its Volatility: Application of Asset Approach," International Journal of Business and Administrative Studies, Professor Dr. Bahaudin G. Mujtaba, vol. 6(6), pages 323-336.

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