The Sources of Recent Inflation in Vietnam: Evidence from a VAR with Sign Restrictions

23 Pages Posted: 9 Apr 2013

See all articles by Tuan Khai Vu

Tuan Khai Vu

Faculty of Economics, Hosei University

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

Vu, Tuan Khai, The Sources of Recent Inflation in Vietnam: Evidence from a VAR with Sign Restrictions (March 2013). Tokyo Center for Economic Research (TCER) Paper No. E-43, Available at SSRN: https://ssrn.com/abstract=2247163 or http://dx.doi.org/10.2139/ssrn.2247163

Tuan Khai Vu (Contact Author)

Faculty of Economics, Hosei University ( email )

4342 Aihara-machi
Machida, Tokyo 194-0298
Japan

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