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Volume 8 - Number 2 | July 2024

Money supply, inflation and output: an empirically comparative analysis for Vietnam and China

Pham Dinh Long, Bui Quang Hien, Pham Thi Bich Ngoc

25/08/2024 29 8 0
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Money supply Inflation Output Monetary policy

Abstract:

Purpose
This study focuses on analyzing the relation between money supply, inflation and output in Vietnam and China.

Design/methodology/approach
Using the error correction model and the vector autoregression model (ECM and VAR) and the canonical cointegration regression (CCR), the study shows similar patterns of these variable relations between the two economies.

Findings
The study points out the difference in the estimated coefficients between the two countries with different economic scales. While inflation in Vietnam is strongly influenced by expected inflation and output growth, inflation in China is strongly influenced by money supply growth and output growth.

Originality/value
To the best of the authors’ knowledge, this is the first empirical and comparative research on the relation between money supply, inflation and output for Vietnam and China. The study demonstrates that the relationship between money supply, inflation and output is still true in case of transition economies.

References:

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Further reading

  1. Chow, G.C. (1987), “Money and price level determination in China”, Journal of Comparative Economics, Vol. 11, pp. 319-333.
  2. Knell, M. and Stix, H. (2005), “The income elasticity of money demand: a meta-analysis of empirical results”, Journal of Economic Surveys, Vol. 19, pp. 513-533, doi: 10.1111/j.0950-0804.2005.00257.x.
  3. Kumar, S. (2014), “Money demand income elasticity in advanced and developing countries: new evidence from meta-analysis”, Applied Economics, Vol. 46, pp. 1873-1882, doi: 10.1080/00036846.2014.887195.
  4. Sriram (1999), Survey of Literature on Demand for Money: Theoretical and Empirical Work with Special Reference to Error-Correction Models, Work Pap No. 99/64, IMF, pp. 1-77.
  5. Zuo, H. and Park, S.Y. (2011), “Money demand in China and time-varying cointegration”, China Economic Review, Vol. 22, pp. 330-343, doi: 10.1016/j.chieco.2011.04.001.

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