Money Supply and Inflation in Vietnam: An Approach from Structural Equation Model

Abstract

This paper examines the relationship between money supply and inflation in Vietnam. Basing on the operating mechanism of  the mediator - money transmission channels, Structural Equation Model (SEM) is being applied to describe and explain the uninterrupted impact chain from money supply to transmission channels and then from transmission channels to inflation in Vietnam. Data are collected from World Bank statistics as well as the General Statistics Office of Vietnam in the time period of 1995 to 2016 quarterly, to generate ad estimate the weight of the causal effects. The experimental result of this analysis shows that interest rate and exchange rate are the two main channels to secure the controlling purpose of money supply on inflation in Vietnam.

Keywords: inflation, money supply, money transmission channels, monetary policy, credit, exchange rate

DOI: 10.7176/JESD/10-10-10

Publication date:May 31^st 2019