The inflation of Vietnam in transition

1. Introduction In Vietnam, sharp fluctuations of inflation in a decade raises a very interesting issue to the economists. Since the initial 1980 reform wave, inflation started to climb up and to peak at nearly 500% in 1986 (figure 1), after which it dramatically went down. Figure 1: Vietnam's General Price Index, 1979-1995 Source : Adapted from Tran Hoang Kim, 1994 and WB, 1994 & 1996 Reports The paper endeavours to identify and point out the causes and effects of inflation based on both Structuralist and Keynesian positions. Throughout the paper, a main theme is that monetary policy is passive in Vietnam. Monetary expansion is not the unique fundamental cause of inflation. However, deposit rate and credit control may be applied to fight inflation without support to the monetarists in case the financial system is very underdeveloped. The paper aims to answer the research following questions : • What are the causes and determinants of inflation in Vietnam in 1985-1995? • What has been the role and the impact of monetary policy on inflation in this period? • What are the lessons and policy implications for Vietnam? The paper argues that monetary expansion is not the only cause of inflation of Vietnam and will therefore employ both the Neo-Keynesian and the Structuralist theories to look into the causes and effects of inflation of Vietnam in a length of decade.download