The effect of money growth on inflation in vietnam from 2004 to 2010

UNIVERSITY OF ECONOMICS INSTITUTE OF SOCIAL STUDIES THE HAGUE HO CHI MINH CITY THE NETHERLANDS VIETNAM VIETNAM - NETHERLANDS PROGRAMME FOR M.A IN DEVELOPMENT ECONOMICS THE EFFECTS OF MONEY GROWTH ON INFLATION IN VIETNAM FROM 2004 TO 2010 A thesis submitted in partial fulfilment of the requirements for the degree of MASTER OF ARTS IN DEVELOPMENT ECONOMICS By BUI DINH PHUONG THAO Academic Supervisor: NGUYEN VAN NGAI HO CHI MINH CITY, April 2011 CONTENTS CHAPTER 1: INTRODUCTION 1.1 PROBLEM STATEMENT 1.2 RESEARCH OBJECTIVES AND QUESTIONS .3 1.3 METHODOLOGY 1.4 STRUCTURE OF THESIS CHAPTER 2: LITERATURE REVIEW THEORETICAL LITERATURE 1.1 INFLATION 2.1.2 SOURCES OF INFLATION Keynesian View Demand-pull infiation 11 Cost-push or structuralist infiation /3 Monetarists View 15 2.1.3 MONEY GROWTH 17 2.2 EMPIRICAL LITERATURE 21 2.3 AN OVERVIEW OF VIETNAM INFLATION AND MONEY GROWTH FROM 2000 TO 2010 29 2.3.1 INFLATION 29 2.3.2 MONEY GROWTH 31 2.4 CHAPTER REMARK 32 CHAPTER 3: RESEARCH METHODOLOGY, MODEL SPECIFICATION AND DATA SOURCES 34 3.1 ANALYTICAL FRAMEWORK 34 CHAPTER 4: THE EFFECTS OF MONEY GROWTH ON INFLATION IN VIETNAM FROM 2004 TO 2010 52 - 4.1 DESCRIPTIVE STATISTIC .52 4.2 ECONOMETRIC RESULTS 54 4.2 l UNIT ROOT TESTS 54 4.2.2 BIVARIATE TESTS 55 Engle-Granger cointegration tests 55 Error correction model 56 4.2.3 MULTIVARIATE TESTS 57 Johansen cointegration tests 57 Vector error correction model (VECM), Granger causality tests, variance decomposition and impulse response function 59 4.3 MODEL FORECASTS 66 4.4 RESULTS COMPARISON .66 ' 4.5 CHAPTER REMARK 70 CHAPTER 5: CONCLUSIONS AND POLICY IMPLICATION 73 5.1 CONCLUSIONS .73 5.2 POLICY IMPLICATION 74 5.3 LIMITATION 76 REFERENCES APPENDIX LIST OF TABLES Table l : Variables Description, Expected Signs and Data Sources .36 Table l: Description of Variables , 52 Table 4.2: Correlation among Variables 54 Table 4.3: Unit Root Tests Results 54 Table 4.4: Unit Root Tests for Residual of CPI and M2 55 Table 4.5: Error Correction Model 56 Table 4.6: Johansen’s Cointegration Tests With Lags 58 Table 4.7: Granger Causality Tests: P-Values For The /' Tests 60 Table 4.8: Variance Decomposition of CPI (Order Reflects Cholesky Ordering) 62 Table 4.9: The Thesis’ Results in Comparison with Empirical Studies’ Results .67 LIST OF FIGURES Figure 2.1: The Long-Run Macroeconomic Equilibrium Figure 2.2: Recessionary and Inflationary Gap 10 Figure 2.3: Government Intervention When Recessionary Gap Occurs .10 Figure 2.4: An Increase In Aggregate Demand 12 Figufe 2.5: Demand-pull Inflation Spiral 13 Figure 2.6: An Increase in Short-run Aggregate Supply 14 Figure 2.7: A Cost-push Inflation Spiral 14 Figure 2.8: CPI in December and Average CPI from 2001 to 2010 31 Figure 2.9: Broad Money Growth From 2002 To 2010 32 Figure 3.1: Analytical Framework 34 Figure 4.1: Impulse Response Functions 65 CHAPTER INTRODUCTION This chapter will explain the importance of this thesis, its objectives and research questions In addition, a brief of methodology is also mentioned in this part Finally, the structure of thesis will be presented 1.1 PROBLEM STATEMENT Money plays important role to the economy Greco (2001) suggested money has five functions which are “a medium of exchange, a standard of value, a unit of account, a store of value and a standard of deferred payment” As a medium of exchange, money helps to divide the goods exchange process into two separate parts which are purchase process and sales process Therefore, people can buy goods at different places and sell goods in different time; hence money promotes trading activities Furthermore, money is used as standard to measure and present value of goods as well as prices of goods It extremely supports business to quote and record costs, products’ prices and calculates value of gross domestic products (GDP), gross national products In addition, money is preferred to keep for future consumption and prevent risks As a standard of deferred payment, money makes payment become easier, more flexible and time-saving It increases the liquidity of debts, thus supports businesses and economic growth Based on its importance to the economy, money growth can affect the economy in many channels People receiving more money are willing to consume more, thus it stimulates consumption and encourages imports More money means more capital to make investment in order to expand companies’ business Besides, growth in money supply will sponsor government’s expenditure and decrease governmental budget deficit Consequently, an increase in money stock may lead to growth in aggregate demand and positively affect the economy On the other hand, high growth in money may reduce its value and cause an increase in price level Monetarists suggested that money is the main determinant of inflation while Keynesian views argued money which leads aggregate • demand to exceed aggregate supply is only one of determinants of inflation However, Mishkin (1995) concluded that both monetarists and Keynesians believed that high inflation only possibly occurs with high money growth rate There are also a majority of empirical studies examining the effects of money growth on inflation Several studies suggested that money supply significantly positively influences inflation such as Moroney (2002), De Grauwe and Poland (2005), Thornton (2008), Kaufmann and Kugler (2008), Gingting and Bird (2009) and Basco, et al (2009) In contrast, some papers, for example Fic (2003), argued that the effects of money growth on inflation is insignificant In case of Vietnam, there are different findings regarding the dependence of inflation on money supply According to Baker, et al (2006), Goujon (2006) and Thanh (2008), money positively impacts price level On the other hand, a research of Hung and D Pfau (2008) pointed out this effect is unobvious In addition, according to the Vietnam’s Prime Minister Nguyen Tan Dung (2011), the primary goals of the government at present are to stabilize macroeconomic and to control inflation at an appropriate level If money growth does affect inflation in Vietnam, monetary policy becomes a powerful policy for the government to maintain inflation at its target level However, there is few studies examined and quantified the effects of money growth on inflation in Vietnam in order to define the level of increases in money supply to meet the target inflation Therefore, this thesis aims to not only examine the influence of money growth on inflation but also estimate the level of money growth to achieve the expected inflation of the Vietnamese government in 2011 1.2 RESEARCH OBJECTIVES AND QUESTIONS Analyzing the impact of money supply on inflation is extremely important for the • government to conduct an appropriate monetary policy Therefore, this thesis aims to examine the effects of money growth on price level in long-run and short-run in Vietnam In order to meet this overall goal, the research will obtain following objectives: (i) Analyze the effects of money growth on inflation in Vietnam in long-run (ii) Analyze the effects of money growth on inflation in Vietnam in short-run (iii) Advise the level of money growth to meet the target inflation of the Vietnamese government in 201 l The research questions are proposed: (i) Does money affect inflation in Vietnam in long-run? (ii) Does money affect inflation in Vietnam in short-run? (iii) Which level of money growth does meet the target inflation in 2011 of Vietnam’s government? 1.3 METHODOLOGY In order to examine the dependence of inflation on money growth in Vietnam in long-fun and short-run, monthly data from December 2003 to June 2010 are collected from International Monetary Fund and Vietnam General Statistics Office The research will employ descriptive statistics and econometric techniques Descriptive analysis will firstly give a summary of all variables to provide an overview of data collection such as their distribution, central tendency and variation Then the correlation matrix will suggest the potential relationship between each pair of variables In addition, the unit root tests are used to test for stationary of all variables to ensure the validation of t-tests and F-tests After that, four econometric techniques will be applied in this thesis in order to examine the long-run and short-run effects of money growth on inflation Firstly, to investigate the long-run influence of money growth on inflation to answer the first research question, the Enge-Granger cointegration test and error correction mechanism (ECM) are employed Secondly, the thesis will add other determinants of inflation into a model with money growth then apply the Johansen cointegration tests to re-test the effects of money growth on inflation in long-run and confirm the number of cointegration equations After that, in order to answer the second research question, vector error correction model (VECM), Granger causality tests, variance decomposition and impulse response functions are used to examine the short-run impact of money on inflation Finally, a level of money growth is forecasted by applying VECM to meet the target inflation level of the Vietnamese government in 2011 to answer the third research question 1.4 STRUCTURE OF THESIS The thesis consists of five chapters Chapter presents the important of the thesis’ findings and its objectives It also briefly presents the methodology is applied in the thesis Chapter demonstrates the literature review It starts with definitions of money growth and inflation Then the chapter focuses on Keynesian views and the quantity theory of money After that, empirical studies regarding the effects of money growth on inflation are introduced An overview of inflation rate and growth in money supply in Vietnam from 2000 to 2010 is also presented in this chapter Chapter is based on theories and empirical research to present an analytical framework then develop a model explaining inflation in short-run in Vietnam This chapter will mention data sources as well as economic techniques used in the thesis Chapter presents results of hypotheses testing and suggests the level of money growth to achieve the target inflation of Vietnamese government in 2011 Chapter will give the conclusion, policy implications and suggest for further studies Mackinnon, J.G (1996) ‘Numerical distribution functions for unit root and cointegration tests’, Journal ofApplied Econometrics, Vol 11, No.6, pp.601 -618 Mankiw, G (2002), Macroeconomics, 5th ed, Worth Publishers, New York McTaggart, D., et a1 (2007), Mizcroeconom/cs, 5‘ ed, Pearson Education Australia, New South Wales, pp 688 — 705 Michener, R (2003) Notes on the use of logarithms in economic [Lecture note] Mathematical economics University of Virginia, Virginia, United States Mishkin, F.S (1995), The economics of money, banking and financial markets, 4th ed, Harper Collins, New York, pp 681-708 Moroney, J.R (2002), "Money growth, output growth, and inflation: Estimation of a modern quantity ", Southern Economic Journal, vol 69, no 2, pp 398 Mortaza, M.G (2006), "Sources of inflation in Bangladesh: Recent macroeconomic experience", Working Paper Series, no WP0704 Phillips, P.C.B and Perron, P (1988) ‘Testing for a unit root in time series regression’, BiometFica, Vol.75, No.2, pp.335-346 Piana, V (2001), Inflation Economics Web Institute Available from: http://www.economicswebinstitute.org/glossary/inflat.htm [Accessed: July 20, 2010] Quan, A (2011), VnEconomy - Tong cue thong ke “Lamphat la bieu hien cua tien ra“ Thot su Available from: http://vneconomy.vn/201101011243593 l4p0c9920/tongcuc-thong-ke-lam-phat-la-bieu-hien-cua-tien-ra.htm [Accessed: January 12 , 2011] Stock, J.H and Watson, M.W (2007) Introduction to econometrics, 2‘d Edition, Pearson Education Thanh, B.T (2008), "Inflation in Vietnam over the period 1990-2007”, ISS Research Paper for obtaining the degree ofMaster ofArts in development studies Thornton, J (2008), "Money, output and inflation in African countries", South African Journal ofEconomics , vol 76, no 3, pp 356 Toda, H.Y and Yamamoto, T (1995) Statistical inference in vector autoregressive with possibly integrated processes’, Journal ofEconometrics, Vol.66, No I, pp.225-250 APPENDIX 1: ENGLE-GRANGER COINTEGRATION TEST " Augmented Dickey-Fuller test Null Hypothesis: RESIDCPI_M2 has a unit root Exogenous: None Lag Length: (Automatic based on SIC, MAXLAG=11) t-Statistic Prob.* Augmented Dickey-Fuller test statistic -3.232632 0.0016 Test critical values: -2.596160 -1.945199 -1.613948 1% level 5% level 10% level *MacKinnon (1996) one-sided p-values Augmented Dickey-Fuller Test Equation Dependent Variable: D(RESIDCPI_M2) Method: Least Squares Date: 02/14/11 Time: 20:30 Sample (adjusted): 2004M04 2010M06 Included observations: 75 after adjustments Variable Coefficient Std Error t-Statistic Prob RESIDCPI M2(-1) D(RESIDCPI M2(-1)) D(RESIDCPI" M2(-2)) D(RESIDCPI"M2(-3)) -0.090700 0.381357 0.129278 0.264774 0.028058 0.108395 0.109872 0.107041 -3.232632 3.518216 1.176626 2.473572 0.0019 0.0008 0.2433 0.0158 R-squared Adjusted R-squared S.E of regression 0.366748 0.339991 0.004301 Mean dependent var S.D dependent var Akaike info criterion -0.000128 0.005294 -8.008271 Sum squared resid Log likelihood Durbin-Watson stat 0.001313 Schwarz criterion 304.3101 Hannan-Quinn criter 1.975939 -7.884671 -7.958919 Phillips-Perron test Null Hypothesis: RESIDCPI_M2 has a unit root Exogenous: None Bandwidth: (Newey-West using Bartlett kernel) - Phillips-Perron test statistic Test critical values: 1% level 5% level 10% level *MacKinnon (1996) one-sided pvalues Residual variance (no correction) NAC corrected variance (Bartlett kernel) Adj t-Stat Prob.* -2.006068 0.0436 -2.594946 -1.945024 -1.614050 2.83E-05 7.31 E-05 " Phillips-Perron Test Equation Dependent Variable: D(RESIDCPI M2) Method: Least Squares Date: 02/14/11 Time: 20:30 Sample (adjusted): 2004M01 2010M06 Included observations: 78 after adjustments Variable Coefficient Std Error t-Statistic Prob RESIDCPI_M2(-1) -0.040331 0.032066 -1.257761 0.2123 R-squared Adjusted R-squared S.E of regression Sum squared resid Log likelihood Durbin-Watson stat 0.020129 0.020129 0.005356 0.002209 297.7258 1.111566 Mean dependent var S.D dependent var Akaike info criterion Schwarz criterion Hannan-Ouinn criter 7.67E-06 0.005411 -7.608353 -7.578138 -7.596257 APPENDIX 2: ERROR CORRECTION MODEL • Dependent Variable: D(CPI) Method: Least Squares Date: 04/08/11 Time: 23:06 Sample (adjusted): 2004M01 2010M06 Included observations: 78 after adjustments Variable Coefficient Std Error t-Statistic Prob C D(M2) RESIDCPI_M2(-1) 0.005375 0.181574 -0.068367 0.000696 0.057748 0.022000 7.717911 -3.144228 -3.107526 0.0000 0.0024 0.0027 R-squared Adjusted R-squared S.E of regression Sum squared resid Log likelihood F-statistic Prob(F-statistic) 0.186956 0.165275 0.003642 0.000995 328.8355 8.622951 0.000426 Mean dependent var S.D dependent var Akaike info criterion Schwarz criterion Hannan-Quinn criter Durbin-Watson stat 0.003613 0.003987 -8.354756 -8.264114 -8.318470 1.059195 APPENDIX 3: JOHANSEN’S COINTFGRATION TESTS Date: 02/14/11 Time: 20:34 Sample (adjusted): 2004M10 2010M06 Included observations: 69 after adjustments Trend assumption: Linear deterministic trend Series: CPI M2 OUTPUT CREDIT RATE FOREX Lags interval (in first differences): to Unrestricted Cointegration Rank Test (Trace) Hypothesized Trace 0.05 No of CE(s) Eigenvalue Statistic Critical Value PrOb.** None * At most * 0.967421 0.797890 492.3764 256.1137 95.75366 69.81889 0.0001 0.0000 At most * 0.634147 0.519369 0.307195 0.007636 145.7867 47.85613 76.40561 25.85239 0.528889 29.79707 15.49471 3.841466 0.0000 0.0000 0.0010 0.4671 At most * At most * At most Trace test indicates cointegrating eqn(s) at the 0.05 level * denotes rejection of the hypothesis at the 0.05 level **MacKinnon-Haug-Michelis (1999) p-values Unrestricted Cointegration Rank Test (Maximum Eigenvalue) Hypothesized No of CE(s) Eigenvalue Max-Eigen Statistic 0.05 Critical Value Prob.** None * At most * At most * At most * At most * Atmost5 0.967421 0.797890 0.634147 0.519369 0.307195 0.007636 236.2627 110.3270 69.38107 50.55322 25.32350 0.528889 40.07757 33.87687 27.58434 21.13162 14.26460 3.841466 0.0001 0.0000 0.0000 0.0000 0.0006 0.4671 Max-eigenvalue test indicates cointegrating eqn(s) at the 0.05 level * denotes rejection of the hypothesis at the 0.05 level **MacKinnon-Haug-Michelis (1999) p-values Unrestricted Cointegrating Coefficients (normalized by b’*S11*b=l): CPI 154.0283 26.52877 414.9928 358.5410 M2 -458.2183 279.8314 -183.7702 -219.0340 OUTPUT 224.3390 -54.97094 207.4943 -109.9975 CREDIT 504.3482 -328.4831 -65.22845 415.7824 RATE -436.1113 288.1688 91.18991 -577.5137 FOREX -4159.585 1156.014 136.7819 -4884.219 -136.7728 -347.7573 120.6655 128.4891 -177.4187 -60.94781 -41.59585 -102.0798 121.8321 252.3681 870.8772 2616.725 -0.000484 0.000399 -0.000130 Unrestricted Adjustment Coefficients (alpha): • • D(CPI) D(M2) D(OUTPUT) D(CREDIT) D(RATE) D(FOREX) 0.000297 -0.000514 -0.013502 -0.001614 -0.004549 -0.000499 Cointegrating Equation(s): 4.04E-05 0.001653 0.000282 0.001192 -0.005074 -0.000280 -0.001213 -0.002544 -0.000853 -0.003505 0.000273 Log likelihood 1900.163 0.000600 0.008061 0.000939 -0.000352 0.000448 -0.000336 0.012679 -0.000945 -0.000102 -0.000390 2.47E-07 9.11E-05 -0.000711 -3.22E-05 0.000313 4.29E-05 Normalized cointegrating coefficients (standard error in parentheses) CPI M2 OUTPUT CREDIT RATE 1.000000 -2.974897 1.456479 3.274386 -2.831371 (0.19189) (0.13169) (0.26211) FOREX -27.00532 (0.26782) (2.03325) Normalized cointegrating coefficients (standard error in parentheses) CPI M2 OUTPUT CREDIT RATE 1.000000 0.000000 0.680236 -0.169831 0.181089 (0.39828) (0.44571) (0.65881) 0.000000 1.000000 -0.260931 -1.157760 1.012627 (0.13094) (0.14653) (0.21659) FOREX -11 47846 (5.26254) 5.219296 (1.73009) Adjustment coefficients (standard error in parentheses) D(CPI) 0.045776 (0.04404) D(M2) -0.079094 (0.14432) D(OUTPUT) -2.079643 (1.38822) D(CREDIT) D(RATE) D(FOREX) -0.248630 (0.14301) -0.700629 (0.41533) -0.076829 (0.05958) Cointegrating Equation(s): ' , Log likelihood 1955.327 Adjustment coefficients (standard error in parentheses) D(CPI) 0.046847 -0.124880 (0.04463) (0.15333) D(M2) -0.035241 0.697860 (0.11845) (0.40690) D(OUTPUT) -2.072167 6.265582 (1.40858) (4.83874) D(CREDIT) -0.217016 1.073120 (0.13116) (0.45057) D(RATE) -0.835240 0.664395 (0.32822) (1.12751) D(FOREX) -0.084263 0.150136 (0.05867) (0.20154) Cointegrating Equation(s): • “ Log likelihood 1990.017 Normalized cointegrating coefficients (standard error in parentheses) CPI M2 OUTPUT CREDIT RATE 1.000000 0.000000 0.000000 -1.319786 1.301220 (0.23677) (0.48958) 0.000000 1.000000 0.000000 -0.716650 0.582956 (0.19412) (0.40140) 0.000000 0.000000 1.000000 1.690524 -1.646682 (0.55343) (1.14438) Adjustment coefficients (standard error in parentheses) FOREX 20.99227 (4.74099) -7.236138 (3.88707) -47.73454 (11.0818) D(CPI) -0.153957 (0.10450) -0.035959 (0.13374) -0.035949 (0.07317) D(M2) -0.538616 (0.28425) 0.920768 (0.36375) -0.457751 (0.19902) D(OUTPUT) -3.127831 6.733059 -3.572274 (5.09164) 1.229955 (0.44803) 1.308437 (0.99032) (2.78579) -0.604715 (0.24513) -1.468707 (0.54183) “(3.97874) D(CREDIT) -0.571183 (0.35010) D(RATE) -2.289626 (0.77386) D(FOREX) 0.029065 (0.16149) Cointegrating Equation(s): 0.099951 (0.20666) Log likelihood -0.039831 (0.11307) 2015.294 Normalized cointegrating coefficients (standard error in parentheses) CPI M2 OUTPUT CREDIT RATE 1.000000 0.000000 0.000000 0.000000 -0.276690 (0.07058) 0.000000 000000 0.000000 0.000000 -0.273857 0.000000 0.000000 1.000000 0.000000 0.000000 0.000000 0.000000 1.000000 Adjustment coefficients (standard error in parentheses) D(CPI) -0.010865 -0.123374 -0.079848 (0.11093) (0.11833) (0.06408) D(M2) -0.323483 0.789343 -0.523752 (0.34728) (0.37044) (0.20060) D(OUTPUT) -0.237645 4.967434 -4.458961 (4.88171) (5.20725) (2.81980) D(CREDIT) -0.234517 1.024285 -0.708001 (0.41333) (0.44089) (0.23875) D(RATE) -2.415917 1.385589 -1.429962 (0.99291) (1.05912) (0.57353) D(FOREX) 0.189765 0.001779 -0.089132 (0.18939) (0.20202) (0.10940) Cointegrating Equation(s): Log likelihood (0.29236) (1.16794) 0.374476 (0.20024) -1.195581 (0.17825) -12.29018 (0.79996) -20.96649 (0.71209) 0.334125 (0.14287) -0.473370 (0.44726) -3.384588 (6.28712) -0.759477 (0.53232) -0.545214 (1.27876) 0.009033 (0.24391) 2027.956 Normalized cointegrating coefficients (standard error in parentheses) CPI M2 OUTPUT CREDIT RATE 1.000000 0.000000 0.000000 0.000000 0.000000 0.000000 0.000000 FOREX -6.679001 (0.28197) -22.26177 0.000000 1.000000 0.000000 0.000000 0.000000 0.000000 1.000000 0.000000 0.000000 0.000000 0.000000 1.000000 FOREX -7.525218 (1.27378) -11.14490 (0.84893) -24.62300 (2.07333) -3.058355 (1.55959) Adjustment coefficients (standard error in parentheses) D(CPI) 0.006862 -0.139014 -0.056853 (0.11123) (0.11762) (0.07096) -0.277541 0.748811 -0.464157 D(M2) D(OUTPUT) D(CREDIT) D(RATE) D(FOREX) (0.35104) -1.971736 (4.36572) -0.105226 (0.38278) -2.401969 (1.02087) 0.243049 (0.17925) (0.37122) 6.497306 (4.61666) 0.910219 (0.40478) 1.373283 (1.07955) -0.045230 (0.18956) (0.22396) -6.708385 (2.78529) -0.540287 (0.24421) -1.411868 (0.65131) -0.020013 (0.11436) 0.339516 -0.408372 (0.13952) (0.15053) -0.459398 (0.44034) -3.911966 (5.47628) 0.202234 (0.47510) 2.626825 (5.90850) -0.720156 (0.48016) -0.540972 (1.28056) 0.025238 (0.22485) (0.51805) 0.392944 (1.38163) -0.144634 (0.24260) 0.312099 APPENDIX 4: VECTOR ERROR CORRECTION MODEL Vector Error Correction Estimates Date: 01/07/11 Time: 23:19 Sample (adjusted): 2004M10 2010M06 Included observations: 69 after adjustments Standard errors in ( ) & t-statistics in [ ] Cointegrating Eq: • CointEql CointEq2 CointEq3 CointEq4 CointEq5 CPI(-1) 1.000000 0.000000 0.000000 0.000000 0.000000 M2(-1) 0.000000 1.000000 0.000000 0.000000 0.000000 OUTPUT(-1) 0.000000 0.000000 1.000000 0.000000 0.000000 CREDIT(-1) 0.000000 0.000000 0.000000 000000 0.000000 RATE(-1) 0.000000 0.000000 0.000000 0.000000 1.000000 FOREX(-1) -7.525218 (0.53534) [-14.0569] -23.09932 (1.27378) [-18.1345] -11.14490 (0.84893) [-13.1282] -24.62300 (2.07333) [-11.8760] -3.058355 (1.55959) [-1.96100] 29.62253 91.34233 42.30530 97.80064 11.82389 Error Correction: D(CPI) D(M2) D(OUTPUT) D(CREDIT) D(RATE) D(FOREX) CointEql 0.006862 (0.11123) [0.06170] -0.277541 (0.35104) [-0.79062] -1.971736 (4.36572) [-0.45164] -0.105226 (0.38278) [-0.27490] -2.401969 (1.02087) [-2.35286] 0.243049 (0.17925) [ 1.35591J CointEq2 -0.139014 (0.11762) [-1.18190] 0.748811 (0.37122) [2.01716] 6.497306 (4.61666) [ 1.40736] 0.910219 (0.40478) [2.24865J 1.373283 (1.07955) [ 1.27209] -0.045230 (0.18956) [-0.23861] CointEq3 -0.056853 (0.07096) -0.464157 (0.22396) -6.708385 (2.78529) -0.540287 (0.24421) -1.411868 (0.65131) -0.020013 (0.11436) ' [-0.80119] [-2.07248] [-2.40851] [-2.21237] [-2.16775] [-0.17500] 0.339516 (0.13952) -0.459398 (0.44034) -3.911966 (5.47628) -0.720156 (0.48016) -0.540972 (1.28056) 0.025238 (0.22485) [2.43345] [-1.04327] [-0.71435] [-1.49984] [-0.42245] [0.11224] -0.408372 (0.15053) 0.202234 (0.47510) 2.626825 (5.90850) 0.312099 (0.51805) 0.392944 (1.38163) -0.144634 (0.24260) [-2.71286] [0.42567] [0.44458] [0.60245] [0.28441] [-0.59619] D(CPI(-1)) -0.428841 (0.39892) [-1.07500] 0.005511 (1.25905) [0.00438] 5.835939 (15.6580) [0.37271] -0.313283 (1.37288) [-0.22819] 4.844949 (3.66144) [ 1.32323] 0.220357 (0.64290) [0.34275] D(CPI(-2)) 0.164485 (0.26977) [0.60973] -0.791084 (0.85142) [-0.92914J 12.39205 (10.5886) [ 1.17032] 0.404011 (0.92840) [0.43517J 4.232388 (2.47602) [ 1.70935J 0.315185 (0.43476) [0.72497J D(CPI(-3)) 0.433366 (0.26641) [1.62668] 0.474328 (0.84083) [0.56412] 7.985741 (10.4569) [0.76368] 0.051850 (0.91685) [0.05655] 7.235831 (2.44521) [2.95918] -0.698066 (0.42935) [-1.62587] D(CPI(-4)) 0.615369 (0.38820) [1.58519] 0.679336 (1.22520) [0.55447J 12.45312 (15.2371) [0.81729] -0.688405 (1.33597) [-0.51528] 8.371445 (3.56301) [2.34954J -0.645473 (0.62562) [-1.03173] D(CPI(-5)) 1.219399 (0.42617) [2.86130] -0.274049 (1.34504) [-0.20375] 10.14003 (16.7275) [0.60619] -1.115338 (1.46665) [-0.76046] 11.85233 (3.91153) [3.03010] 0.772231 (0.68682) [ 1.12436] D(CPI(-6)) 1.224591 (0.59600) [2.05468] -1.393400 0.505943 0.338761 (1.88105) [-0.74076] (23.3935) [0.02163] (2.05112) [0.16516] 5.933169 (5.47029) [ 1.08462] 1.076474 (0.96051) [1.12073] (0.50151) [0.72827] 0.365234 -0.682153 (1.58283) [-0.43097] -9.213336 (19.6847) [-0.46805] -0.757902 (1.72594) [-0.43913] -2.544347 (4.60303) [-0.55275] -0.624709 (0.80823) [-0.77293] -0.301599 (0.17882) 0.323623 (0.56437) -10.22343 (7.01878) -0.444833 (0.61540) -2.214673 (1.64126) -0.619265 (0.28818) [-1.68662] [0.57342] [-1.45658] [-0.72284] [-1.34937] [-2.14885] D(CPI(-9)) -0.261013 (0.24424) [-1.06868] -0.867895 (0.77085) [-1.12590] -0.308420 (9.58657) [-0.03217] -0.195338 (0.84054) [-0.23239] 0.210743 (2.24171) [0.09401] 0.078826 (0.39362) [0.20026] D(M2(-1)) 0.140811 (0.79114) [0.73669] -0.267202 (0.60326) [-0.44293] -4.895562 (7.50243) [-0.65253] -1.061596 (0.65781) [-1.61384] -2.732811 (1.75435) [-1.55773] -0.017650 (0.30804) [-0.05730] D(M2(-2)) 0.021111 (0.18082) [0.11675] -1.395004 (0.57069) [-2.44442] -12.13906 (7.09733) [-1.71037] -1.411392 (0.62229) [-2.26807] -3.237720 (1.65963) [-1.95087] 0.288689 (0.29141) [0.99066J D(M2(-3)) 0.177592 -0.847732 -2.256957 -0.645077 -0.250775 0.290646 CointEq4 CointEq5 D(CPI(-7)) D(CPI(-8)) “ (0.21178) [0.83858] (0.66840) [-1.26831] (8.31244) [-0.27152] (0.72883) [-0.88509] (1.94377) [-0.12902] (0.34130) [0.85158] -0.005206 -0.293973 -8.557056 -0.314817 -4.764796 -0.547495 (0.21145) (0.66736) (8.29956) (0.72770) (1.94075) (0.34077) [-0.02462] [-0.44050] [-1.03103] [-0.43262] [-2.45513] [-1.60663] D(M2(-5)) -0.178668 (0.17036) [-1.04878] -0.466193 (0.53767) [-0.86706] -1.075236 (6.68668) [-0.16080] -1.198547 (0.58628) [-2.04432] -1.190703 (1.56360) [-0.76151] 0.141044 (0.27455) [0.51373] D(M2(-6)) 0.266856 (0.16932) [1.57608] -1.297838 (0.53438) [-2.42866] -3.670509 (6.64581) [-0.55230J 0.032863 (0.58270) [0.05640] -0.594774 (1.55404) [-0.38273] 0.716366 (0.27287) [2.62530] D(M2(-7)) 0.052210 (0.26072) [0.20025] -0.305314 (0.82287) [-0.37103] -6.391355 (10.2336) [-0.62455] -0.710110 (0.89727) [-0.79141] -3.682361 (2.39300) [-1.53881] -0.191650 (0.42018) [-0.45612] D(M2(-8)) -0.403674 (0.17588) [-2.29515] 0.382079 (0.55510) [0.68830] -5.342954 (6.90350) [-0.77395] -0.541958 (0.60529) [-0.89536] -1.842106 (1.61430) [-1.14112] -0.214864 (0.28345) [-0.75803] D(M2(-9)) -0.190787 (0.19258) [-0.99071] -0.751931 (0.60780) [-1.23714] 6.226561 (7.55880) [0.82375] 0.400083 (0.66275) [0.60367] 0.471887 (1.76754) [0.26697] 0.299724 (0.31036) [0.96574] D(OUTPUT(-1)) 0.053337 (0.06702) [0.79580] 0.451137 (0.21153) [2.13268] 5.097161 (2.63074) [1.93754] 0.504206 (0.23066) [2.18592] 1.325901 (0.61517) [2.15535] 0.009540 (0.10802) [0.08832] D(OUTPUT(-2)) 0.055171 (0.06334) [0.87106] 0.381736 (0.19990) [ 1.90963] 4.635890 (2.48604) [ 1.86477] 0.458185 (0.21797) [2.10201] 1.152348 (0.58133) [1.98225] 0.002551 (0.10207) [0.02499] D(OUTPUT(-3)) 0.050555 (0.05789) [0.87326] 0.314156 (0.18272) [ 1.71937] 4.128820 (2.27233) [ 1.81700] 0.387925 (0.19924) [ 1.94707] 1.018678 (0.53136) [1.91713] -0.007427 (0.09330) [-0.07960] D(OUTPUT(-4)) 0.023503 (0.05205) [0.45153] 0.267392 (0.16428) [ 1.62765] 3.122907 (2.04306) [1.52854] 0.310540 (0.17913) [1.73356] 0.887468 (0.47775) [1.85761] -0.026953 (0.08389) [-0.32131] D(OUTPUT(-5)) 0.000825 (0.04574) [0.01804] 0.216353 (0.14437) [ 1.49855] 2.629888 (1.79550) [1.46471] 0.227677 (0.15743) [ 1.44623] 0.807099 (0.41986) [ 1.92232] -0.029240 (0.07372) [-0.39663] D(OUTPUT(-6)) -0.009357 (0.04001) [-0.23387] 0.151350 (0.12627) [ 1.19860] 2.385190 (1.57037) [1.51887] 0.227063 (0.13769) [1.64911] 0.612402 (0.36721) [1.66770J -0.024313 (0.06448) [-0.37708] D(OUTPUT(-7)) -0.001050 (0.03535) [-0.02969] 0.097298 (0.11156) [0.87213] 1.679994 (1.38745) [ 1.21085J 0.167361 (0.12165) [ 1.37575] 0.437974 (0.32444) [ 1.34995] -0.027112 (0.05697) [-0.47592] D(M2(-4)) , ' D(OUTPUT(-8)) 0.004933 (0.02448) [0.20153] 0.060195 (0.07726) [0.77915] 0.880174 (0.96080) [0.91608] 0.094291 (0.08424) [1.11929] 0.214729 (0.22467) [0.95574] -0.013090 (0.03945) [-0.33182] D(OUTPUT(-9)) 0.007177 0.016970 0.215203 0.049392 0.046674 -0.000395 ³ D(CREDIT(-1)) (0.01094) [0.65615] (0.03452) [0.49155] (0.42935) [0.50124] (0.03764) [ 1.31205] (0.10040) [0.46489] -0.187619 -0.274412 5.280081 0.712175 (0.15415) [-1.21716] (0.01763) [-0.02243] (0.48650) [-0.56405] (6.05033) [0.87269] (0.53049) [1.34249] 1.578024 (1.41480) [1.11537] 0.024488 [0.09857] (0.24842) D(CREDIT(-2)) -0.082757 (0.12984) [-0.63739] 0.860579 (0.40979) [2.10007] 4.531014 (5.09626) [0.88909] 0.588916 (0.44684) [ 1.31797] 2.070538 (1.19170) [ 1.73747] -0.567825 (0.20925) [-2.71366] D(CREDIT(-3)) -0.331965 (0.20381) [-1.62881] 0.546389 (0.64324) [0.84943] 2.664406 (7.99962) [0.33307] 0.205566 (0.70140) [0.29308] 0.809020 (1.87062) [0.43249] -0.331185 (0.32846) [-1.00831] D(CREDIT(-4)) -0.033126 (0.22361) [-0.14814] -0.258533 (0.70574) [-0.36633] 3.848124 (8.77689) [0.43844] 0.539259 (0.76955) [0.70075] 2.216942 (2.05237) [ 1.08019] 0.507199 (0.36037) [ 1.40744] D(CREDIT(-5)) -0.016639 (0.14760) [-0.11273] -0.038433 (0.46584) [-0.08250] -5.250789 (5.79333) [-0.90635] 0.614324 (0.50795) [1.20941] -2.293984 (1.35470) [-1.69335] 0.043959 (0.23787) [0.18480] D(CREDIT(-6)) -0.585765 (0.16894) [-3.46724] 0.582054 (0.53320) [ 1.09161] -6.298023 (6.63116) [-0.94976] 0.122833 (0.58141) [0.21127] -3.473716 (1.55062) [-2.24022] -0.469963 (0.27227) [-1.72610] D(CREDIT(-7)) -0.615957 (0.28198) [-2.18439] 0.376239 (0.88997) [0.42276] 1.151135 (11.0680) [0.10401] 0.610846 (0.97043) [0.62946] -1.176537 (2.58812) [-0.45459] -0.148596 (0.45444) [-0.32699] D(CREDIT(-8)) -0.191568 (0.21863) [-0.87623] 0.146682 (0.69001) [0.21258] 3.964698 (8.58128) [0.46202] 0.493873 (0.75240) [0.65640] 0.384504 (2.00663) [0.19162J -0.012106 D(CREDIT(-9)) 0.010839 (0.09369) [0.11569] 0.644614 (0.29571) [2.17991] -0.811897 (3.67753) [-0.22077] 0.374566 (0.32244) [1.16165] 1.074394 (0.85995) [1.24937J 0.009417 (0.15100) [0.06237] D(RATE(-1)) 0.358210 (0.15199) [2.35683] -0.374295 (0.47969) [-0.78028] -3.646364 (5.96565) [-0.61123] -0.376436 (0.52306) [-0.71968] -1.348647 (1.39500) [-0.96677] 0.143339 (0.24494) [0.58519] D(RATE(-2)) 0.286297 (0.14517) [ 1.97211] -0.070926 (0.45818) [-0.15480J -3.411325 (5.69817) [-0.59867] -0.198503 (0.49961) [-0.39731] -1 332069 (1.33245) [-0.99971] 0.050009 (0.23396) [ 0.21375] D(RATE(-3)) 0.140897 (0.10774) [ 1.30778] -0.104899 (0.34003) [-0.30850] -3.578754 (4.22878) [-0.84628] -0.288842 (0.37078) [0.77902J -1.475400 (0.98885) [-1.49203] 0.016212 (0.17363) [ 0.09337] (0.35234) [-0.03436J D(RATE(-4)) 0.136456 (0.06031) -0.118785 (0.19034) -0.878230 (2.36711) -0.187486 (0.20755) -0.324991 (0.55352) 0.162494 (0.09719) [2.26268] [-0.62408] [-0.37101] [-0.90334] [-0.58714] [ 1.67190J D(RATE(-5)) 0.163766 (0.07379) [2.21946] -0.258181 (0.23288) [-1.10865] -1.167175 (2.89618) [-0.40301] 0.038677 (0.25393) [0.15231] -1.118329 (0.67724) [-1.65131] 0.038984 (0.11891) [0.32784] D(RATE(-6)) 0.070795 (0.07242) [0.97758] 0.137170 (0.22856) [0.60014] -1.609754 (2.84250) [-0.56632J -0.224222 (0.24923) [-0.89967] -0.923793 (0.66468) [-1.38982] -0.038465 (0.11671) [-0.32957] D(RATE(-7)) 0.070912 (0.04795) [1.47878] -0.097016 (0.15135) [-0.64102] -1.257927 (1.88220) [-0.66833] -0.030807 (0.16503) [-0.18667] -0.484577 (0.44013) [-1.10098] 0.137888 (0.07728) [ 1.78424] D(RATE(-8)) 0.131265 (0.05538) [2.37030J -0.116886 (0.17478) [-0.66875J -0.148118 (2.17368) [-0.06814] -0.058791 (0.19059) [-0.30847] -0.632653 (0.50829) [-1.24467J 0.114570 (0.08925) [ 1.28371J D(RATE(-9)) 0.022730 (0.07045) [0.32263J 0.123666 (0.22236) [0.55615] -1.813183 (2.76537) [-0.65567] 0.121763 (0.24247) [0.50219] -0.886258 (0.64665) [-1.37054] -0.014947 (0.11354) [-0.13164] D(FOREX(-1)) 3.121571 (1.17338) [2.66031] 0.518745 (3.70334) [0.14007] -24.03590 (46.0563) [-0.52188] -3.367147 (4.03818) [-0.83383] -12.56720 (10.7697) [-1.16690] -0.002099 (1.89103) [-0.00111] D(FOREX(-2)) 3.467437 (1.11638) -1.437419 (3.52343) -26.33865 (43.8189) -2.817213 (3.84200) -11.73673 (10.2465) 1.207434 (1.79916) [3.10596] [-0.40796] [-0.60108] [-0.73327] [-1.14544] [0.67111] 3.792305 (1.35309) [2.80269] -0.996898 -28.95453 (53.1101) [-0.54518] -2.807061 (4.65664) [-0.60281] -14.95137 (12.4192) [-1.20390] 0.968720 (2.18065) [0.44424] D(FOREX(-4)) 2.953611 (1.41298) [2.09034] -0.293540 (4.45954) [-0.06582] -38.71901 (55.4607) [-0.69813J -2.128495 (4.86274) [-0.43771J -18.08955 (12.9688) [-1.39485] -0.333889 (2.27716) [-0.14663] D(FOREX(-5)) 2.340477 (1.02353) [2.28666] 1.059611 (3.23040) [0.32801] -27.81646 (40.1746) [-0.69239] -2.101559 (3.52247) [-0.59662] -15.90127 (9.39434) [-1.69264] -0.001052 (1.64953) [-0.00064] D(FOREX(-6)) 3.041156 (0.90718) [3.35230] -1.171316 (2.86318) [-0.40910J -25.41950 (35.6077) [-0.71388] -2.383446 (3.12205) [-0.76342] -15.11839 (8.32645) [-1.81571] 1.201408 (1.46202) [0.82175] D(FOREX(-7)) 2.261803 (1.18559) [ 1.90774] -0.917204 (3.74188) [-0.24512] -38.98622 (46.5356) [-0.83777] 0.052338 (4.08020) [0.01283] -16.73014 (10.8818) [-1.53744] 0.906788 (1.91070) [0.47458] D(FOREX(-8)) 0.827210 (0.93128) 0.931088 (2.93923) -27.60197 (36.5535) -1.936969 (3.20498) -16.69443 (8.54760) -0.878814 (1.50085) D(FOREX(-3)) (4.27053) [-0.23344] ³ D(FOREX(-9)) R-squared Adj R-squared Sum sq resids S.E equation F-statistic Log likelihood Akaike AIC Schwarz SC Mean dependent S.D dependent [ 0.88825] [ 0.31678] [-0.75511] [-0.60436] [-1.95311] [-0.58554] 0.137358 0.349822 -14.82746 -1.514781 -7.404856 -0.421397 (0.37705) [0.36430] (1.19000) [0.29397] (14.7994) [-1.00190] (1.29760) [-1.16738] (3.46066) [-2.13973] (0.60765) [-0.69349] -0.006006 (0.00564) [-1.06399] 0.036135 (0.01782) [2.02835] 0.291862 (0.22155) [ 1.31733] 0.034550 (0.01943) [ 1.77859] 0.116616 (0.05181) [2.25092] 0.001406 (0.00910) [0.15459] 0.980096 0.849611 2.23E-05 0.001575 7.511221 417.6363 -10.36627 -8.423569 0.003560 0.004063 0.941469 0.557764 0.000223 0.004972 2.453626 338.3316 -8.067583 -6.124882 0.009957 0.007477 0.937864 0.530526 0.034416 0.061839 2.302421 164.4082 -3.026326 -1.083624 0.005133 0.090252 0.950612 0.626849 0.000265 0.005422 2.936131 332.3592 -7.894469 -5.951768 0.010994 0.008876 0.969217 0.767420 0.001882 0.014460 4.802917 264.6739 -5.932578 -3.989876 0.001844 0.029984 0.911038 0.327840 5.80E-05 0.002539 1.562141 384.7076 -9.411815 -7.469114 0.001026 0.003097 Determinant resid covariance (dof adj.) Determinant resid covariance Log likelihood Akaike information criterion Schwarz criterion 2.42E-28 1.19E-33 2027.956 -47.47698 -34.84942 APPENDIX 5: GRANGER CAUSALITY TESTS VEC Granger Causality/Block Exogeneity Wald Tests Date: 02/14/11 Time: 20:50 Sample: 2003M12 2010M06 included observations: 69 Dependent variable: D(CPI) Excluded Chi-sq df Prob D(M2) D(OUTPUT) D(CREDIT) D(RATE) D(FOREX) 17.53293 18.36050 25.90913 17.80698 25.57990 9 9 0.0410 0.0312 0.0021 0.0375 0.0024 AII 177.7006 45 0.0000 Dependent variable: D(M2) Excluded Chi-sq D(CPI) 7.361719 df Prob 0.5995 ³ D(OUTPUT) D(CREDIT) 10.68938 9.479299 D(RATE) D(FOREX) AII 15.60468 6.697440 9 9 0.2976 0.3943 0.0756 0.6686 86.81706 45 0.0002 Dependent variable: D(OUTPUT) Excluded Chi-sq df Prob D(CPI) D(M2) D(CREDIT) D(RATE) D(FOREX) 9.803646 3.732099 4.723347 1.465323 1.848931 9 9 0.3666 0.9281 0.8577 0.9974 0.9936 All 29.53044 45 0.9636 Dependent variable: D(CREDIT) Excluded Chi-sq df Prob D(CPI) D(M2) 3.237583 13.23368 D(OUTPUT) D(RATE) D(FOREX) 18.35864 8.942131 12.16134 9 0.9541 0.1523 0.0312 AII 131.6254 45 0.0000 df Prob 0.0000 0.0934 0.4795 0.0058 0.0106 9 0.4426 0.2044 Dependent variable: D(RATE) Excluded Chi-sq D(CPI) D(M2) D(OUTPUT) 47.19599 14.91113 8.552751 D(CREDIT) 23.17219 D(FOREX) 21.49492 9 9 AII 140.3087 45 0.0000 df Prob Dependent variable: D(FOREX) ô ã Excluded Chi-sq D(CPI) D(M2) D(OUTPUT) D(CREDIT) D(RATE) 15.67600 5.842375 18.10699 17.43779 13.14273 9 9 0.1563 0.0740 0.7556 0.0340 0.0423 All 55.20045 45 0.1418 ... grouping observations in level of inflation The finding is the effects of growth in money supply on inflation in high -inflation, high -money- growth countries is stronger than its effects in low -inflation, ... suggested to stronger influences inflation in 32 high -inflation countries than it is in low -inflation countries in long-run In contrast, the contribution of money growth in explaining inflation is... short-run effects of money growth on inflation as well as the importance of money supply in explaining inflation in Vietnam 3.2 MODEL SPECIFICATION In order to examine the short-run effects of money growth