tailieunhanh - Impacts of fiscal and monetary policies on inflation: Theoretical and practical model for the case of Vietnam

This paper is to sum up theoretical paradigms and the application of VAR model with a view to testing the relationship between the fiscal policy, the monetary policy, and inflation in Vietnam. Quantitative analyses indicate that inflation in Vietnam, besides effects of monetary policy, is also impinged by the fiscal policy (. the national budget overspend) within recent years. | RESEARCHES & DISCUSSIONS The origin of inflation is often pondered in light of monetary policies. Yet in recent years, economists have started studying its origin via fiscal policies, especially budget deficit. This paper is to sum up theoretical paradigms and the application of VAR model with a view to testing the relationship between the fiscal policy, the monetary policy, and inflation in Vietnam. Quantitative analyses indicate that inflation in Vietnam, besides effects of monetary policy, is also impinged by the fiscal policy (. the national budget overspend) within recent years. Keywords: fiscal policy, monetary policy, budget overspend, inflation, Vietnam 1. Introduction When the fiscal policy has been employed as an effective apparatus to stimulate the economic growth of a country, it is inevitable that its government has to cope with a budget deficit. Vietnam is not an exception. The model of evolving the economy by means of increasing investments, especially the public one, has been criticized due to the fact that it results in the higher and higher budget deficit, causing volatility in the macroeconomic indicators such as high inflation rate. This model also makes Vietnam’s budget scale higher than a reasonable budget one in recent years (Vuõ S. Cöôøng, 2009). The question of whether Vietnam’s inflation is influenced by the fiscal policy or the monetary policy alone has been taken into contemplation so far. To work out an answer to this issue is very crucial for defining measures to maintain a sustainable economic development by coordinating the fiscal and monetary policies. For former socialist countries, quantitative researches have pointed out that the high inflation rate in the first * Policy advisory group - Ministry of Finance stage of transition resulted from the loose monetary policy (Ross, 1998; Cottarelli & Doyle, 1999). In Vietnam, its high inflation rate in the first stage of economic reform resulted from excessive increases in the money