Relationship between inflation and economic growth in Vietnam

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Nguyen Hoang Tien


Vietnam government considers inflation adjustment as a primary goal of
policies planning and implementing to achieve economic stability and GDP growth.
Therefore, defining the threshold in inflation-GDP growth relationship is an important
task to propose target inflation rate precisely. This paper investigates the threshold
between inflation and GDP growth in Vietnam. Inflation is assumed to have a
nonlinear relationship with GDP growth. The results confirm the existence of the
threshold at 6 per cent inflation point, and the negative impacts on GDP growth of
hyperinflation above the threshold and too low inflation beyond the threshold. Taking
into account the total impact of inflation on GDP growth, the effects are negative.
This finding suggests that Vietnam authorities should target lower inflation of 6 per
cent to improve GDP growth.

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