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Globalisation and inflation - the case of Vietnam

The objective of this study is to analyse the impact of the domestic output gap and the foreign output gap on domestic inflation through trade openness within the Phillips curve of the open economy. Using quarterly data for the period 2001-2016 and a non-linear threshold model, the research results support the hypothesis of inflation globalisation and present partial impacts of globalisation on the economy of Vietnam. | VU TRONG HIEN Globalisation and Inflation - The Case of Vietnam Vu Trong Hien111 Received 18 July 2017 Revised 12 December 2017 Accepted 20 December 2017 Abstract The objective of this study is to analyse the impact of the domestic output gap and the foreign output gap on domestic inflation through trade openness within the Phillips curve of the open economy. Using quarterly data for the period 2001-2016 and a non-linear threshold model the research results support the hypothesis of inflation globalisation and present partial impacts of globalisation on the economy of Vietnam. The foreign output gap is statistically significant and has the same effects on domestic inflation while the impact of the domestic output gap on domestic inflation is not statistically significant. Keywords inflation domestic output gap threshold model globalisation. JEL Classification C24 . E31 . E37 . F41 . F62. Citation Vu Trong Hien 2017 . Globalisation and inflation - The Case of Vietnam. Banking Technology Review Vol 1 No.2 pp. 171-185. S3 Vu Trong Hien - Email vutronghien@iuh.edu.vn. 1 Industrial University of Ho Chi Minh City 12 Nguyen Van Bao Street Ward 4 Go Vap District Ho Chi Minh City. Volume 1 149-292 No.2 December 2017 BANKING TECHNOLOGY REVIEW 171 GLOBALISATION AND INFLATION - THE CASE OF VIETNAM 1. Introduction The impact of globalisation can change the determinants of inflation determination of a country by replacing domestic factors such as the domestic output gap by global factors such as the foreign output gap Bianchi Civelli 2015 Ahmad Civelli 2016 . This is referred to as the inflation globalisation hypothesis which implies that global factors replace domestic factors to determine domestic inflation Ahmad ctg 2016 . The main prediction of this hypothesis is the explanatory role of inflation of the domestic output gap decreases while that of the foreign output gap increases when the integration level to the global economy increases. Most empirical studies testing this .