Threshold effects in the relationship between inflation and economic growth in Vietnam

Abstract

     This paper is an empirical study on the relationship between inflation and economic growth ofVietnam. Using time series data for the period 1980-2014 and applying the ARDL bounds testapproach developed by Pesaran et al. (2001) to co-integration relationship for the long-run.the author found that inflation and economic growth as well as control variables have a closerelationship with each other both in the short-run and long-run. In addiiion, this study examinesthe issue of the existence of threshold effect in the relationship between inflation and economicgrowth in Vietnam. The result is noticeable with the threshold level found at 8%. Thismeans that the relationship between inflation and growth is not linear, positive correlation forinflation rate below threshold level. And if inflation rates above threshold level, the correlationbecomes negative.