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On the effects of monetary policy in Vietnam: Evidence from a Trilemma analysis
Author(s) -
Hoang VietNgu,
Nguyen Duc Khuong,
Pham Tuan
Publication year - 2021
Publication title -
the world economy
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.594
H-Index - 68
eISSN - 1467-9701
pISSN - 0378-5920
DOI - 10.1111/twec.13025
Subject(s) - trilemma , economics , monetary policy , exchange rate , interest rate , monetary economics , recession , speculation , macroeconomics , international economics
During and after the 2008–09 global financial crisis, the growth cycle of Vietnam's economy has shifted from an average annual growth rate of 7%–8% to an average annual growth rate of 5%‐6% with a high level of macroeconomic instability and uncertainty from 2009 till 2016. Related studies have speculated that the operations of monetary policies during this period were not effective in recovering the economic growth and stabilising the overall price level and total output level. This paper provides the first empirical examination of this speculation using the Trilemma framework. Our empirical results show that the State Bank of Vietnam has had adopted a set of policies aiming at maintaining exchange rate stability and interest rate independence while easing the restrictions on capital inflows. The combination of these three monetary policy approaches is found to violate the rule of Trilemma. Consequently, exchange rate and interest rate policies became less effective and failed to stabilise the economy in response to the global economic recession.