A Macro-Model Approach to Monetary Policy Analysis and Forecasting for Vietnam

26 Pages Posted: 3 Feb 2016

See all articles by Allan Dizioli

Allan Dizioli

IMF; University of Pennsylvania - Department of Economics

Jochen Schmittmann

International Monetary Fund (IMF)

Date Written: December 2015

Abstract

The paper develops a small New-Keynesian FPAS model for Vietnam. The model closely matches actual data from 2000-2014. We derive an optimal monetary policy rule that minimizes variability of output, inflation, and the exchange rate. Compared to the baseline model, the optimal rule places a larger weight on output stabilization as the intermediate target to achieve inflation stability, while allowing greater exchange rate flexibility. We analyze the dynamics of key macro variables under various shocks including external and domestic demand shocks and a lift-off of U.S. interest rates. We find that the optimal monetary policy rule delivers greater macroeconomic stability for Vietnam under the shock scenarios.

Keywords: Bayesian Estimation, exchange rate, interest rates, monetary policy rule, central bank, Forecasting and Simulation, Monetary Policy (Targets, Instruments, and Effects),

JEL Classification: E31, E47, E52

Suggested Citation

Dizioli, Allan and Schmittmann, Jochen, A Macro-Model Approach to Monetary Policy Analysis and Forecasting for Vietnam (December 2015). IMF Working Paper No. 15/273, Available at SSRN: https://ssrn.com/abstract=2727222

Allan Dizioli (Contact Author)

IMF ( email )

700 19th Street NW
Washington, DC 20431
United States

University of Pennsylvania - Department of Economics ( email )

Ronald O. Perelman Center for Political Science
133 South 36th Street
Philadelphia, PA 19104-6297
United States

Jochen Schmittmann

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

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