The transmission channels of monetary policy in Vietnam

Abstract

This paper investigates the mechanism of monetary transmission in Vietnam through four major channels namely interest rate channel, exchange rate channel, asset channel and credit channel for the period of 1995 - 2009. The paper applies LA-VAR technique to examine the effectiveness of monetary policy framework by analyzing the causal relationships of each monetary channel on objective variables. The study shows that the impact of the channels on output and price is as expected. Among them, exchange rate channel has impact on both output and price; in there its impact on output is larger. While equity price channel was not effective to transfer the impact of monetary policy on output and price because of the lack of established and well-functioning stock market. The study finds that lending rate and domestic credit are controlled directly to enhance economic growth in Vietnam.

Keywords

• monetary transmission channel
• output
• price level
• vietnam