TAYLOR RULE AND IMPLEMENTATION OF MONETARY POLICY IN VIETNAM
DOI:
https://doi.org/10.18623/rvd.v23.5678Keywords:
Monetary Policy, Taylor Rule, State Bank of VietnamAbstract
Using quarterly data, this paper measures the response of the State Bank of Vietnam's policy rate to inflation and the output gap of the economy. The policy rate responds to inflation, but not to the output gap. There is no evidence that the response of the interest rate to inflation is nonlinear or asymmetric. Two characteristics of the structure of the Vietnamese economy contribute to this result: i. Vietnam's foreign economic sector is not affected by domestic interest rate, making the relationship between interest rate and aggregate demand much weaker when compared to other developing countries; ii. The credit limit tool can be used in addition to the interest rate tool, making the asymmetric response of interest rate, which is stronger when inflation is high, unnecessary for Vietnam.
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