Inflation dynamics in Vietnam

Abstract

Inflation has been a persistence problem in Vietnam and it needs a well-developed practical model which can capture the important driving forces to analyze inflation dynamics in Vietnam. Despite the vast research of hybrid New Keynesian Phillips Curve on developed and developing countries, little is known about the case of Vietnam. This thesis contributes to literature by investigating the possibility of hybrid New Keynesian Phillips Curve in explaining inflation dynamics in Vietnam and examining what is the main causes of high inflation in Vietnam. The output is calculated from the difference between actual GDP and potential GDP which is de-trended by Hodrick Prescott Filter. The hybrid NKPC is estimated by Generalized Method of Moments, in which future inflation expectation is examined by actual value. The findings show that the hybrid New Keynesian Phillips Curve fits Vietnamese data very well. Inertial inflation and inflation expectations are both important determination of inflation persistence. The output gap also contributes to the inflation dynamics. The estimation is extended by include global oil price and global food price and the results supports to the roles of these two variables in inflation process. The study will contribute to future research on similar topics.