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The role of monetary policy in the New Keynesian Model: Evidence from Vietnam

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  • Van Hoang

Abstract

This paper reproduces a version of the New Keynesian model developed by Ireland (2004) and then uses the Vietnamese data from January 1995 to December 2012 to estimate the model???s parameters. The empirical results show that before August 2000 when the Taylor rule was adopted more firmly, the monetary policy shock made considerable contributions to the fluctuations in key macroeconomic variables such as the short-term nominal interest rate, the output gap, inflation, and especially output growth. By contrast, the loose adoption of the Taylor rule in the period of post-August 2000 leads to a fact that the contributions of the monetary policy shock to the variations in such key macroeconomic variables become less substantial. Thus, one policy implication is that adopting firmly the Taylor rule could strengthen the role of the monetary policy in driving movements in the key macroeconomic variables, for instance, enhancing economic growth and stabilizing inflation.

Suggested Citation

  • Van Hoang, 2014. "The role of monetary policy in the New Keynesian Model: Evidence from Vietnam," William Davidson Institute Working Papers Series wp1075, William Davidson Institute at the University of Michigan.
    • Handle: RePEc:wdi:papers:2014-1075
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    Cited by:

    1. Van Nguyen, Phuong, 2020. "The Vietnamese business cycle in an estimated small open economy New Keynesian DSGE model," Dynare Working Papers 56, CEPREMAP.
    2. Phuong V. Nguyen, 2020. "The Vietnamese business cycle in an estimated small open economy New Keynesian DSGE model," Journal of Economic Studies, Emerald Group Publishing Limited, vol. 48(5), pages 1035-1063, October.

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    More about this item

    Keywords

    New Keynesian model; Monetary Policy; Technology Shock; Cost-Push Shock; Preference Shock.;
    All these keywords.

    JEL classification:

    • E12 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Keynes; Keynesian; Post-Keynesian; Modern Monetary Theory
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles

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