A Macro-Model Approach to Monetary Policy Analysis and Forecasting for Vietnam
December 23, 2015
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Summary
The paper develops a small New-Keynesian FPAS model for Vietnam. The model closely matches actual data from 2000-2014. We derive an optimal monetary policy rule that minimizes variability of output, inflation, and the exchange rate. Compared to the baseline model, the optimal rule places a larger weight on output stabilization as the intermediate target to achieve inflation stability, while allowing greater exchange rate flexibility. We analyze the dynamics of key macro variables under various shocks including external and domestic demand shocks and a lift-off of U.S. interest rates. We find that the optimal monetary policy rule delivers greater macroeconomic stability for Vietnam under the shock scenarios.
Subject: Exchange rates, Financial services, Foreign exchange, Inflation, Inflation targeting, Monetary policy, Output gap, Prices, Production, Real interest rates
Keywords: Bayesian Estimation, demand shock, Exchange rates, food inflation Phillips Curve, fuel inflation, Global, Inflation, inflation stability, Inflation Targeting, Monetary Policy, monetary policy rule, nominal exchange rate, nominal interest rate, Output gap, Real interest rates, WP
Pages:
25
Volume:
2015
DOI:
Issue:
273
Series:
Working Paper No. 2015/273
Stock No:
WPIEA2015273
ISBN:
9781513595665
ISSN:
1018-5941
