Money Supply and Inflation in Vietnam: An Approach from Structural Equation Model

Thu Thi Hoai Do

doi:10.7176/jesd/10-10-10

Abstract

This paper examines the relationship between money supply and inflation in Vietnam. Basing on the operating mechanism of the mediator - money transmission channels, Structural Equation Model (SEM) is being applied to describe and explain the uninterrupted impact chain from money supply to transmission channels and then from transmission channels to inflation in Vietnam. Data are collected from World Bank statistics as well as the General Statistics Office of Vietnam in the time period of 1995 to 2016 quarterly, to generate ad estimate the weight of the causal effects. The experimental result of this analysis shows that interest rate and exchange rate are the two main channels to secure the controlling purpose of money supply on inflation in Vietnam. Keywords: inflation, money supply, money transmission channels, monetary policy, credit, exchange rate DOI : 10.7176/JESD/10-10-10 Publication date :May 31 st 2019

Highlights

Inflation is a popular macroeconomic phenomenon having great impacts on a wide range of economic and social aspects
This paper examines the impact of monetary policy on inflation criteria in Vietnam through transmission channels
Analysis on the impact of interest rate transmission channel onto consumer price index (CPI) is expressed in figure 3 showing www.iiste.org that there does have a relationship between these two variables, the result of which will be testified through Structural Equation Model (SEM) in the coming part

Summary

Introduction

Inflation is a popular macroeconomic phenomenon having great impacts on a wide range of economic and social aspects. As far as we have discussed, transmission channels act as a mediation between money supply and its final objectives, SEM completely can be applied in this case to examine the impact of monetary policy on the subsequent factors. During the last period, both interest rate for deposits and loans have no rigid relationship with money supply due to the interest rate operating mechanism of Central Bank This result is illustrated in figure 3. Analysis on the impact of interest rate transmission channel onto CPI is expressed in figure 3 (right side) showing www.iiste.org that there does have a relationship between these two variables, the result of which will be testified through SEM in the coming part. Inflation is measured by consumer price index (CPI) collected by General Statistics Office; the other variables such as interest rate, average quarter exchange rate, economic credit balance and money supply. The descriptive data of variables are clarified in table 1

Methodology

Findings

Conclusion