Original scientific paper
https://doi.org/10.1080/1331677X.2020.1724172
Welfare consequences of inconsistent monetary policy implementation in Vietnam
Le Thanh Ha
orcid.org/0000-0002-4517-9097
To Trung Thanh
Doan Ngoc Thang
Abstract
We develop a New Keynesian model featuring Calvo price setting
and Calvo wage setting to quantify the welfare consequences of
shifting trend inflation in Vietnam. To capture the characteristics
of the Vietnamese economy, we use the Simulated Method of
Moment and calibrate parameters jointly to match the important
selected moments of Vietnamese data. The results show a severe
consequence of a constant positive trend inflation and an
exogenous shock to trend inflation, especially when a central
bank sets a high level of inflation target. Among staggered price
and wage contracts, the latter play a vital role in transmitting the
adverse impacts of constant and shifting trend inflation into the
economy. Based on our analyses, raising inflation targets would
seem to be a bad policy prescription in Vietnam.
Keywords
Shifting trend inflation; welfare consequences; second and third-order approximation; staggered price and wage contracts; Vietnam
Hrčak ID:
254404
URI
Publication date:
9.2.2021.
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