Abstract
Purpose This study focuses on analyzing the relation between money supply, inflation and output in Vietnam and China. Design/methodology/approach Using the error correction model and the vector autoregression model (ECM and VAR) and the canonical cointegration regression (CCR), the study shows similar patterns of these variable relations between the two economies. Findings The study points out the difference in the estimated coefficients between the two countries with different economic scales. While inflation in Vietnam is strongly influenced by expected inflation and output growth, inflation in China is strongly influenced by money supply growth and output growth. Originality/value To the best of the authors’ knowledge, this is the first empirical and comparative research on the relation between money supply, inflation and output for Vietnam and China. The study demonstrates that the relationship between money supply, inflation and output is still true in case of transition economies.
Highlights
During economic transition, China has been considered a leader among socialist countries that have successfully transformed the economic model from a planned economy to a marketoriented economy
This study focuses on analyzing the relation of three macro-variables, including money supply real output and price level
Ordinary Least Squares (OLS) regression results which show the impact of M2/Y on the level price P are presented in equations (3) and (4), respectively, for Vietnam in the period 1986–2016 and for China in the period 1978–2008 after 30 years of reform (Table 4)
Summary
China has been considered a leader among socialist countries that have successfully transformed the economic model from a planned economy to a marketoriented economy. In the area of monetary policy, China and Vietnam have a thorough transition from one-tier bank system – which holds full control of the national financial system to two-tier bank system – by splitting into central banks and commercial banks, providing credit services for specific industries (Ma, 1999; Oanh, 2001; Dao and Vu, 2008). This change helps the JEL Classification — E3, E45, O11 © Pham Dinh Long, Bui Quang Hien and Pham Thi Bich Ngoc. The full terms of this licence may be seen at http:// creativecommons.org/licences/by/4.0/legalcode
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