THE STATE BANK OF VIET NAM MINISTRY OF EDUCATION AND TRAINING BANKING UNIVERSITY HO CHI MINH CITY O - NGUYEN THI THU TRANG RELATIONSHIP BETWEEN INFLATION AND ECONOMIC GROWTH IN OPERATION MONETARY POLICY IN VIETNAM SUMMARY ECONOMIC THESIS Ho Chi Minh city, 2019 THE STATE BANK OF VIET NAM MINISTRY OF EDUCATION AND TRAINING BANKING UNIVERSITY HO CHI MINH CITY O - NGUYEN THI THU TRANG RELATIONSHIP BETWEEN INFLATION AND ECONOMIC GROWTH IN OPERATION MONETARY POLICY IN VIETNAM SUMMARY ECONOMIC THESIS Major: Economics - Finance, Banking Code: 9.31.12.01 Science guide: Assoc.Prof.Dr Ha Quang Dao Ho Chi Minh city, 2019 INTRODUCTION 1- NEED AND SIGNIFICANCE OF THE RESEARCH TOPIC Economic growth and inflation are two major problems for any economy In economic development, the most difficult challenge is the harmonious combination between economic growth and inflation control Therefore, one of the important goals of the managers and regulators of the economy in any country in the world including Vietnam is to create a stable macroeconomic environment with growth High and sustainable economy, together with low inflation Inflation is not a strange problem, especially for the commodity economy In terms of inflation, over the past two decades, inflation and especially the determinants of inflation and the fluctuations of inflation have been one of the most discussed topics in Vietnam Inflation is a complex issue and depends on many macroeconomic factors Therefore, the study of the causes and the search for measures to cope with inflation are always attractive to the world economists and an annual work of the governments of countries Economic growth is even more important and urgent for the least developed countries, because this is the only way for these countries to close the gap and catch up with developed countries Steady and steady economic growth is an important task of a country, especially developing countries The high-growth economy allows the country to fulfill basic tasks such as ensuring sustainable socio-economic development, raising people's living standards, increasing national security and affirming Positioning of the country in international relations This explains why economic growth is always a central issue in the economic policies and development strategies of every country Both inflation and economic growth recently, the instability of the world economy after the global economic crisis impacted the growth rate and increased inflation in many countries including Vietnam In many countries, achieving high growth rates has to trade with high inflation Does Vietnam need to trade like that? To answer that question, it is necessary to study in depth the interaction between growth and inflation in monetary policy management, thereby finding a way to achieve the dual goal of curbing inflation development and growth, from which the Vietnamese economy meets the conditions for sustainable development Among many factors affecting the relationship between inflation and economic growth, it is necessary to find out which factors have the strongest impact to get the implementation measures to solve the double problem: curb inflation and promote growth Especially in the context of limited national resources, our problem is how to combine those resources with weights to achieve optimal efficiency The interaction between economic growth and inflation is complex, not always following economic rules At each stage of the economy with different levels of economic growth, there will be appropriate inflation levels Therefore, the issue of the relationship between economic growth and inflation is really attractive, especially in the context of economic integration today, then it is necessary to study such relationship That is why I chose the topic "The relationship between inflation and economic growth in managing monetary policy in Viet Nam" as a research topic 2- RESEARCH OBJECTIVES 2.1 Overall objectives: Analyze and assess the situation and factors affecting the relationship between inflation control and economic concentration in monetary policy management in Vietnam from 2004 to 2018; From there, propose solutions to impact on this relationship in order to implement monetary policy management to achieve the dual goal: to control inflation and increase economic growth To accomplish the above objective, the following specific objectives need to be implemented 2.2 Detail goal: - Systematically selectively theorize about monetary policy, inflation, economic growth and the relationship between inflation control and economic growth in managing monetary policy; - Identify factors affecting the relationship of inflation control and economic growth in operating monetary policy in Vietnam; - Situation of relationship to control inflation and economic growth in operating monetary policy in Vietnam in Vietnam; - Solutions to influence inflation control and economic growth in monetary policy management in Vietnam 3- RESEARCH QUESTIONS To accomplish the above objectives, the study will answer the following questions: What is the relationship to control inflation and economic growth in managing monetary policy in Vietnam? Does inflation control affect the relationship of inflation control and economic growth in monetary policy management in Vietnam? What factors affect the relationship of inflation control and economic growth in monetary policy management in Vietnam? What is the solution that affects the relationship of inflation control and economic growth in managing monetary policy in Vietnam? 4- METHODOLOGY To achieve the set objectives for the research topic The research method used in the thesis is a combination of qualitative and quantitative methods In which the qualitative method is essential As follows: Qualitative research methods: This method is used by collecting secondary data sources such as surveys, books, newspapers, magazines, and dissertations thesis, law, summary report of the State Bank, relevant ministries, General Department of Statistics, from which summarize, analyze and compare Quantitative research methods: Quantitative research by sending surveys to knowledgeable experts in the financial, monetary and policy sectors Collect and process data using SPSS software With this method, to assess the reliability and suitability of factors affecting the relationship between inflation control and economic growth in operating monetary policy in Vietnam 5- SUBJECTS OF RESEARCH AND SCOPE OF RESEARCH - Object of research: The author studies issues related to the relationship between inflation control and economic growth in monetary policy management in Vietnam - Scope of research: secondary data of the General Statistics Office, SBV on monetary policy management, inflation and economic growth in Vietnam in the 2004-2018 period 6- RELATED RESEARCH WORKS 6.1 Overview of related research  There are many research works: thesis, articles, discussion papers on monetary policy, inflation, economic growth as well as the relationship between them • The dissertations focused on analyzing the relationship between monetary policy and macroeconomic policies, post-crisis experiences and solutions to complete monetary policy can include:  PhD thesis of PhD student Nguyen Thi Kim Thanh "Improving the monetary transmission mechanism of the State Bank of Vietnam in the context of international economic integration" in 2008 of the Hanoi Banking Academy  PhD thesis of PhD student Nguyen Thi Van Anh "Researching the impact of monetary policy on Vietnam's macro economy" in 2018 of the University of Commerce  PhD thesis of PhD student Khuat Duy Tuan "Managing monetary policy to control inflation during the transition of the economy in Vietnam" in 2012 of Hanoi National Economics University • The dissertation researches on inflation, the relationship between inflation and economic growth, can include:  PhD thesis of PhD student Pham Thai Ha "Solution to control inflation in Vietnam" in 2012 by Hanoi Banking Academy  PhD thesis of PhD student Nguyen Thi Phuong Nhung "The relationship between economic growth and the stock market in Vietnam" in 2012 of University of Economics - Law, Vietnam National University, Ho Chi Minh City  Master thesis of Tran Thi Thuy Trang "The relationship between inflation and economic growth in Vietnam" in March 2016 of the University of Finance and Marketing  Master's thesis by Le Thi Dung "Inflation and economic growth in Vietnam" in December 2012 of Ho Chi Minh City University of Economics Quantitative studies often use VAR family models to evaluate the effectiveness of monetary policy impacts through channels: Article by MSc Ha Thi Huong Lan: “Growth and inflation in Vietnam” On July 18, 2012, posted on the website of the financial training fostering section, the research and exchange section used the Co-linked regression method, Model Error correction (ECM) and Method of variance analysis (VAR model) analyze consumer price index (CPI) and gross domestic income (GDP) (data released by the General Statistics Office of Vietnam ) to conclude: " the relationship between growth and inflation in Vietnam (in the long and short term) is basically consistent with the theory and test results in the world of Tobin (1965) ), Mallik and Chowdhury (2001), Frria and Carneiro (2001) have published It can be affirmed: the relationship between growth and inflation of the Vietnamese economy follows the general rule ”Article by Nguyen Thi Thuy Vinh“ Studying the role of monetary transmission channels for growth and inflation In April 2015, Vietnam magazine of Economics and Development.Le and Pfau (2008) developed a VAR model and concluded that interest rate channel had no significant impact, money supply has a strong impact on output Camen (2006) used an original Baysian VAR model to test the effectiveness of monetary policy Bhattacharya and Duma (2012) studied monetary policy of Vietnam in the period of 2004-2012 using SVAR model and showed that interest rates only affect inflation in a short time; Nguyen Thi Lien Hoa and Dang Tran Dung (2013) also used the SVAR method and came to the conclusion that exchange rates and interest rates were weakly affected; M2 has a strong impact with a month lag to inflation Bui Quoc Dung (2017) using the VAR model shows that LSCS has had a good effect in curbing inflation for the period since 2011 Pham Chi Quang (2019) studied the transmission mechanism of monetary policy in the period of 2006-2016 by using VARs model and VEC variant forms, Engel-Granger regression model 6.2 Limitations and research gaps The review showed that the previous studies still had certain limitations, namely: (i) There were no studies on monetary policy, inflation and economic growth in the period 2004-2018; (ii) Most of the in-depth studies assessing the relationship on inflation and economic growth in Vietnam have not evaluated the factors affecting the relationship between them, in order to find the root cause thoroughly resolving the relationship between inflation and economic growth; (iii) Most of the in-depth studies assess the relationship of inflation and economic growth in Vietnam but are not associated with operating monetary policy From the above limitations, it shows that the research gap needs to be considered, that is, there should be a separate study on the theory and practice of the relationship between inflation and economic growth in the administration of monetary policy in the period from 2004-2018; At the same time, research on other countries' experiences and lessons related to solving this relationship Since then, in-depth analysis to identify the factors affecting the relationship between inflation and economic growth in order to achieve the maximum goals of monetary policy: to control inflation and promote economic growth International The solution from the root causes factors affecting the relationship between inflation and economic growth in Vietnam 7- NEW POINTS OF THE THESIS Firstly, the thesis systematizes the theory of inflation, economic growth and monetary policy Especially using the model to show the relationship between inflation and economic growth in operating monetary policy in Vietnam Secondly, the overall relationship between inflation control and economic growth promotion in monetary policy management from theory to practice in Vietnam is assessed Thirdly, find out the factors affecting the relationship between inflation and economic growth in Vietnam Fourthly, the thesis studies how the government can achieve the dual goal of controlling inflation and promoting economic growth in operating monetary policy based on scientific research 8- THESIS STRUCTURE In addition to the introduction and conclusion, the structure thesis consists of chapters Chapter 1: Monetary policy, the relationship between inflation and economic growth in managing monetary policy Chapter 2: Models and methods of studying the factors affecting the relationship between inflation and economic growth Chapter 3: Current situation of relationship between controlling inflation and promoting economic growth in managing monetary policy in Vietnam Chapter 4: Addressing the relationship between controlling inflation and promoting economic growth in managing monetary policy in Vietnam CHAPTER 1: MONETARY POLICY AND RELATIONSHIP BETWEEN INFLATION AND ECONOMIC GROWTH 1.1 Overview of monetary policy 1.1.1 Concepts and characteristics of monetary policy 1.1.1.1 Concept In short, monetary policy is the sum of the ways in which the central bank through its activities affects the amount of money in circulation to serve the country's socio-economic goals in a given period It is an important part of the government's macroeconomic policy system Chart 1.1: Definition of monetary policy Policy Monetary policy economic purpose Monetary Article of the State Bank of Vietnam law states: “The national monetary policy is a part of the State's economicfinancial policy to stabilize the value of money, curb inflation and contribute to promoting socio-economic development, ensuring national defense and security and improving the people's life " 19 691 345 ** ** P Pearson Correlation L Sig (2-tailed) 000 000 356 682 356 404 ** ** L N Pearson Correlation N Sig (2-tailed) 000 000 356 659 356 382 ** ** DT N Pearson Correlation V Sig (2-tailed) 000 000 356 565 356 332 ** ** N N Pearson Correlation C Sig (2-tailed) 000 000 356 608 356 415 ** ** N N Pearson Correlation T Sig (2-tailed) 000 000 N 356 356 ** Correlation is significant at the 0.01 level (2-tailed) 356 41 2** 00 356 35 7** 00 356 33 5** 00 356 39 9** 00 356 41 2** 00 356 356 38 7** 00 356 47 2** 00 356 50 2** 00 356 35 7** 00 356 38 7** 00 356 356 30 1** 00 356 38 0** 00 356 335 399 ** ** 000 000 356 472 356 502 ** ** 000 000 356 301 356 380 ** ** 000 000 356 356 355 ** 000 356 355 ** 356 000 356 356 Source: SPSS 20 20 2.5.3 Regression analysis Table 2.7: Summary of regression Model Summaryb M R R odel Square Adjust ed R Square Std Error of the Estimate Durbi n-Watson 876 247 a 37 78 a Predictors: (Constant), TN, CN, VDT, LP, CSTT, NL b Dependent Variable: MQH Source: SPSS 20 1.924 Table 2.8: Statistics in the regression equation Mode Unstandardi zed Coefficients l Std Error ( Consta nt) L 215 2.672 244 01 320 4.654 163 01 211 700 186 01 274 2.602 112 01 146 678 075 01 102 390 C N T N Collinearity Statistics Toler ance 280 V DT Beta 01 N S ig .209 L P t 07 C STT Standa rdized Coefficients 2.972 V IF 003 000 000 000 000 000 000 720 389 733 365 597 675 743 347 729 372 649 540 a Dependent Variable: MQH Source: SPSS20 From the table above, the standardized regression function has the following form: MQH = 280*CSTT + 320*LP + 211*NL + 274*VDT + 146*CN + 102*TN 21 2.5.4 Discuss the regression results Based on the regression results table in the above table, the thesis discusses according to standardized regression coefficients The results show that, among the factors that measure the relationship of Inflation and Economic Growth: the most important factor is the "Inflation component - LP", with beta of 0.320, the second is the "Main" factor monetary policy - monetary policy, with beta 0.280, the third is the element "Investment Capital - VDT", with beta 0.274; the fourth is the "Human Resources - NL" component, which has beta 0.211), and the two elements "Technology - Technology" and "Natural Resources - TN" are the weakest with 0.146 beta and 0.102 Table 2.9: Importance of independent variables Independent variable Beta value CSTT LP NL VDT CN TN 280 320 211 274 146 102 Perc influence entage % order 21,1 24,0 15,8 20,6 11,0 7,7 Source: SPSS 20 22 CONCLUSION OF CHAPTER Chapter presents the research method, the characteristics of the research sample, the results of testing the scales of inflation and economic growth The results show that the scales are reliable in value The results also show that the theoretical model is suitable and confirmed through actual data collected from 2004-2018 Regression analysis shows that after adjusting the model, the new model is accepted It is consistent with the research data, in which the order of the impact of the variables according to the descending level of influence is respectively: the most important factor is the "inflation component - LP", the second is the factor "Components of monetary policy", the third is the element "Components of VDT"; The fourth is the element "Ingredients is energy", and the two factors "Components of industry" and "Components of TN" have the weakest impact 23 CHAPTER 3: CURRENT STATUS OF RELATIONSHIP BETWEEN INFLATION CONTROL AND PROMOTE ECONOMIC GROWTH IN THE MANAGEMENT OF MONETARY POLICY IN VIETNAM 3.1 Current situation of operating monetary policy in Vietnam 3.1.1 Actual situation of operating monetary policy instruments in Vietnam 3.1.1.1 Open market operations 3.1.1.2 Reserve requirement 3.1.1.3 Exchange rate 3.1.1.4 Credit limit 3.1.1.5 Operating interest rates 3.1.1.6 Rediscount interest rate 3.1.2 Current situation of operating monetary policy to control inflation and promote economic growth in Vietnam 3.1.2.1 Current situation of operating monetary policy to control inflation in Vietnam Table 3.1: Objectives and results of the implementation of the inflation rate for the period of 2004-2018 Unit:% Targets Target 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018