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Expectations and the cost of disinflation in Vietnam

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  • Thi Pham
  • James Riedel

Abstract

Vietnam has the highest inflation rate in Asia. After a year-long debate about which should get priority, stability or growth, the government in early 2011 made it official – it would pursue stability at the cost of growth. This paper considers the cost of disinflation in Vietnam and the central role of expectations. The paper uses the Phillips curve as a starting point, but argues that the Phillips curve framework is not applicable in an economy, like Vietnam's, in which there is massive unemployment and inefficiency in resource allocation. The paper argues that the trade-off between growth and stability in Vietnam is a false one – Vietnam needs sweeping structural reforms to achieve both stability and growth.

Suggested Citation

  • Thi Pham & James Riedel, 2013. "Expectations and the cost of disinflation in Vietnam," Journal of the Asia Pacific Economy, Taylor & Francis Journals, vol. 18(1), pages 86-97.
    • Handle: RePEc:taf:rjapxx:v:18:y:2013:i:1:p:86-97
    DOI: 10.1080/13547860.2012.742696
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    References listed on IDEAS

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    1. Charles T. Carlstrom & Timothy S. Fuerst, 2008. "Explaining apparent changes in the Phillips curve: trend inflation isn't constant," Economic Commentary, Federal Reserve Bank of Cleveland, issue Jan.
    2. Charles T. Carlstrom & Timothy S. Fuerst, 2008. "Explaining apparent changes in the Phillips curve: the Great Moderation and monetary policy," Economic Commentary, Federal Reserve Bank of Cleveland, issue Feb.
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