Abstract
Inflation and lending rates are two important macroeconomic indicators as they affect economic growth. The correlation between the inflation rate and the lending rate in Vietnam and China is analyzed to determine whether the lending rate causes inflation or not. An ordinary least square model (OLS) and a unit root test are applied to check the correlation and cointegration related to the inflation and lending rates to avoid spurious regression. The research time series data were collected from 1996 to 2017. The correlation of Vietnam’s variables is 56%, the correlation of China’s variables is 55%, which is a close correlation. The empirical cointegration test results for Vietnam and China are suitable for two research models. The relationship between these two indicators influences each other. In the short term, inflation stimulates economic growth through loose monetary policy through the lending rate. However, in the long term, if the money supply increases continuously, inflation will slow economic growth and increase bad debt. The empirical results are to make accurate forecasts and determine monetary policy for micro-managers who set the goal of sustainable economic growth and have a strategy for economic development in the short and long term.
Highlights
The stability of economies around the world is a goal of controlling inflation through the lending rate
This means that if result showed that the nominal interest rate and the money supply growth is extremely high for a inflation rates were positively related
Empirical results show that inflation and lending rates are closely related and interact with each other
Summary
The stability of economies around the world is a goal of controlling inflation through the lending rate. Unit root tests, cointegration test, error vector correction model and a Granger causality test were applied (Amalendu, 2016) These studies showed that the authors found the correlation between inflation rate and interest rate, and the results were obtained using econometric or statistical methods. This means that if result showed that the nominal interest rate and the money supply growth is extremely high for a inflation rates were positively related. A study of indemand decreases, and money demand flation and interest rates indicated that they is negatively related to interest rates, that is, an had a positive correlation, i.e., an increased inincrease in money demand leads to an increase terest rate caused an increase in production costs in money supply when that influences inflation and, as a result, the level of prices and inflation (Mishkin, 2016).
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