Assessing the price and output effects of monetary policy in Vietnam: Evidence from a VAR analysis

Using monthly data, we perform a vector-autoregressive analysis to measure the effects of monetary policy on the Vietnamese economy. We concentrate our attention on the period following the introduction of the Law on Central Bank in January 1998 (which brought the national monetary policy and its objectives in line with international practices). Contrary to previous studies on Vietnam, we find evidence suggesting that monetary policy (through the manipulation of interest rates) is an effective policy tool in stabilizing prices. However, credit growth tends to induce inflationary pressures. In addition, we find that an expansion of broad money supply leads to an increase in industrial production.