Central bank credibility and the sustainability of exchange rate regimes in Vietnam

Abstract

This paper deals with the central bank credibility to sustain exchange rate regimes in inflation control. We find that the central bank credibility relates to the ability the central bank to build a credible monetary policy to control inflation under the fixed and flexible exchange rate regime. We develop a simple theoretical model to explain how the central bank credibility can ensure price stability under the fixed and flexible exchange rate regime. The conclusion is that while adopting a more flexible exchange rate regime, the State Bank of Vietnam can build its credibility to control inflation by combining the flexible exchange rate regime with the inflation targeting.

Keywords

• central bank credibility
• fixed exchange rate regime
• flexible exchange rate regime
• monetary targeting
• inflation targeting
• vietnam