Impact of fiscal and monetary policy on inflation in Vietnam

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High and sustainable growth of gross domestic product with stable inflation is one of the objectives of the most macroeconomic policies both in the world and in Vietnam. Therefore, price stability plays a vital role in assuring GDP growth. In order to stabilize prices, fiscal and monetary policies need to be appropriately managed. The aim of this study is to assess the impact of the monetary and fiscal policies on inflation in Vietnam during the period from 1997 to 2020. This study has applied the vector autoregression (VAR) model along with data gathered from the World Bank and General Statistics Office of Vietnam. The research results indicate that Vietnam’s inflation is positively influenced by a fiscal deficit (2.943), money supply (2.672), government expenditure (8.347), and interest rate (3.187). Among the factors, government expenditure has the biggest influence on inflation. Besides, trade openness (–0.311) also influences inflation, but the effect is negative and negligible. Finally, the policy implications are focused on coordinating fiscal and monetary policies maintaining a moderate level of inflation for economic growth.

Acknowledgment
This article is funded from the funding source of the research: “Solutions to deal with the risk of financial instability from support packages to fight economic recession caused by the covid-19 pandemic” with code B2022-MHN-02 by Vietnam Misnistry of Education and Training.

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    • Table 1. Description of the variables
    • Table 2. Stationarity of the variables
    • Table 3. VAR model estimation results
    • Formal Analysis
      Trong Tai Nguyen, Ngoc Anh Tran
    • Project administration
      Trong Tai Nguyen
    • Supervision
      Trong Tai Nguyen
    • Validation
      Trong Tai Nguyen, Thuy Duong Phan, Ngoc Anh Tran
    • Visualization
      Trong Tai Nguyen, Thuy Duong Phan, Ngoc Anh Tran
    • Conceptualization
      Thuy Duong Phan, Ngoc Anh Tran
    • Data curation
      Thuy Duong Phan
    • Methodology
      Thuy Duong Phan
    • Writing – original draft
      Thuy Duong Phan, Ngoc Anh Tran
    • Writing – review & editing
      Thuy Duong Phan, Ngoc Anh Tran