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The Inflation-Economic Growth Relationship: Estimating the Inflation Threshold in Vietnam

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Econometrics for Financial Applications (ECONVN 2018)

Part of the book series: Studies in Computational Intelligence ((SCI,volume 760))

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Abstract

Utilizing annual data over the period 1990–2015 and employing the threshold model developed by Sarel (1996) with some modifications, this paper estimates the inflation threshold in Vietnam and simultaneously examines the linkage between inflation and economic growth. The findings show that the estimated inflation threshold stays at 3%–4%, above which the positive effect of inflation on economic growth vanishes, and this effect starts fading at 5.5%–7.5%. The findings of this paper regarding the inflation threshold and the inflation-economic relationship are expected to help the State Bank of Vietnam (SBV) in conducting its monetary policy, especially the inflation policy. Moreover, the findings also help the government evaluate the role of the gross domestic product’s determinants in promoting the economic growth.

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Notes

  1. 1.

    Doi Moi is the name given to the economic reforms initiated in Vietnam in 1986 with the goal of creating a “socialist-oriented market economy”.

  2. 2.

    See Fisher (1993. pp. 503).

  3. 3.

    In the log model, whatever level of initial inflation is, a doubling of the inflation rate will have the same effect on economic growth (Espinoza et al. 2010).

  4. 4.

    This group is composed of upper-middle income and lower-middle to low-income countries.

  5. 5.

    The Balassa-Samuelson effect suggests that in developing economies where labor productivity catch-up is taking place in manufacturing, the equilibrium inflation rate tends to be higher than for developed countries.

  6. 6.

    Only the studies of Espinoza (2010), Vinayagathasan (2012), and Su (2015) include Vietnam in their cross-country sample.

  7. 7.

    The results of unit root test for the sub-sample periods (1992–2015 and 1995–2015) suggest that all variables are stationary.

  8. 8.

    The estimated result of 1995–2015 is not statistically significant.

  9. 9.

    The quadratic specification of the 1990–2015 period does not provide significant results.

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Author information

Authors and Affiliations

  1. Banking Academy of Vietnam, 12 Chua Boc, Dong Da, Hanoi, Vietnam

    Tuyen H. Tran

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  1. Tuyen H. Tran
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Correspondence to Tuyen H. Tran .

Editor information

Editors and Affiliations

  1. Banking University HCMC, Ho Chi Minh City, Vietnam

    Ly H. Anh

  2. Banking University HCMC, Ho Chi Minh City, Vietnam

    Le Si Dong

  3. Computer Science Department, University of Texas at El Paso, El Paso, Texas, USA

    Vladik Kreinovich

  4. Banking University HCMC, Ho Chi Minh City, Vietnam

    Nguyen Ngoc Thach

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Tran, T.H. (2018). The Inflation-Economic Growth Relationship: Estimating the Inflation Threshold in Vietnam. In: Anh, L., Dong, L., Kreinovich, V., Thach, N. (eds) Econometrics for Financial Applications. ECONVN 2018. Studies in Computational Intelligence, vol 760. Springer, Cham. https://doi.org/10.1007/978-3-319-73150-6_73

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  • DOI: https://doi.org/10.1007/978-3-319-73150-6_73

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