The Sources of Recent Inflation in Vietnam: Evidence from a VAR with Sign Restrictions
23 Pages Posted: 9 Apr 2013
Date Written: March 2013
Abstract
This paper studies the sources of high and chronic inflation in Vietnam in recent years using the structural VAR method identified by sign restrictions. The novelty of the paper is that the sign restrictions are drawn from a New Keynesian small open economy DSGE model built and calibrated to the data of Vietnam. Variance decomposition results show that supply shocks and demand shocks seem to explain a large part of inflation over the whole sample period, while the contribution of monetary shocks is much smaller but not negligible. Historical decomposition results show that demand shocks and, to a lesser extent, monetary shocks seem to be the main determinants of inflation in the period 2004Q1-2008Q3, while supply shocks appear to be more important in the period 2008Q1-2010Q4.
Keywords: VAR, sign restriction, New Keynesian DSGE model, inflation, Vietnamese economy
JEL Classification: E32, F33, F41
Suggested Citation: Suggested Citation
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