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The role of credit and monetary transmission in Vietnam: A VAR approach

By Nguyen Le Thao Nguyen (VNP 16)

Supervisor: Dr. Nguyen Van Ngai

Abstract

Among different channels (namely: interest rate, asset price, credit, exchange rate channel) are affected by monetary policy, which one plays as a key channel in this mechanism. In this study, I investigate the role of credit channel in monetary transmission mechanism in the case of Vietnam. Two different specifications of loan markets are conducted: classical market (without domestic credit) and augmented market (with domestic credit) to look for the evidences of the role of credit. Vector autoregression model which focuses on the reduced form will be employed as main econometric techniques in this thesis. The empirical results support that credit channel plays important role in monetary transmission in Vietnam case. The correlation between lending channel and monetary policy is somewhat weak. The policy implication that credit sector should be carefully controlled when implements new monetary policy.

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