Inflation and economic growth: Theory and reality in Vietnam

Abstract

1. Theory of inflation and economic growth: Through results of the studies by a number of scholars such as Mundell (1965), Keynes; Fisher (1963) Sarel (1996), Gosh and Philip (1998) Shan and Senhadji (2001), Khan (2005), the writer maintains that inflation may leave both positive and negative impact on economic growth.

2. Growth, inflation and Vietnam’s policy in the coming period: When inflation is low (normally at one digit), it would not leave negative impact on growth; Inflation rate rise normally goes alongside with a higher growth such as in the 1992-2007 period, however, when inflation rate rises at a certain extend, it would leave negative impact on the economic growth such as in the pre- 1992 period.

3. Reasons for high inflation rate include currency behavior, policy and mechanism, production costs.

4. Applying (a) the currency tightening conditionally, supervising the flow of money circulation by controlling the rise of M2 and credit index increase; (b) Tightening the government spending, (c) Combining the currency and fiscal policy, exchange rates, restructuring economic branches, restructuring imports and exports; (d) Controlling the market, distribution network strictly; (e) Re-arranging business activities for a number of major materials and commodities such as cement, steel fertilizers power, coal and consumers goods and so on./.