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The causal relationship between money supply, inflation and economic growth in Vietnam

By Nguyen Trong Tin (VNP 18)

Supervisor: Dr. Nguyen Van Ngai

Abstract

This study analyzes the causal relationships between money supply, inflation and economic growth in Vietnam in the period of 1999Q2 – 2012Q3. Quarterly macroeconomic data were collected from IFS and GSO. The thesis employs the Granger test in the Vector Error Correction Model (VECM) environment to find the Granger causal nexus of three variables for both in short run and long run.

There is one cointegration was found from Johansen’s test for co-integration. The results show that there is a bidirectional relationship between economic growth and inflation for both in the short run and long run, and there are two unidirectional causalities from money supply to growth and inflation. However, there is no evidence for the effectiveness of monetary policy in the short run.

This study analyzes the causal relationships between money supply, inflation and economic growth in Vietnam in the period of 1999Q2 – 2012Q3. Quarterly macroeconomic data were collected from IFS and GSO. The thesis employs the Granger test in the Vector Error Correction Model (VECM) environment to find the Granger causal nexus of three variables for both in short run and long run.

There is one cointegration was found from Johansen’s test for co-integration. The results show that there is a bidirectional relationship between economic growth and inflation for both in the short run and long run, and there are two unidirectional causalities from money supply to growth and inflation. However, there is no evidence for the effectiveness of monetary policy in the short run.

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