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Bulletin of Monetary Economics and Banking

Document Type

Article

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.

First Page

517

Last Page

540

Creative Commons License

Creative Commons Attribution-NonCommercial 4.0 International License
This work is licensed under a Creative Commons Attribution-NonCommercial 4.0 International License

Country

Vietnam

Affiliation

Foreign Trade University

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