Monetary policy inefficiencies in Vietnam: Evidence from a trilemma analysis

Applying the index approach proposed by Aizenman, Chinn, and Ito (2008), this study estimates the trilemma status for Vietnam in two different periods, 1998-2006 and 2007-2014.

Estimations show the trilemma index is stable with little fluctuations for the earlier period but fluctuating at a higher mean value for the later period, implying that the rule might then have been suddenly violated in the near-crisis situation during 2007-2009.

Among the three trilemma policies, managing international capital flows is considered the most difficult task of SBV (State Bank of Vietnam) due to its high trade-off ratios with other policies. In addition, the study also finds a significant relationship between managing capital flows policy and the inflation rate for the whole research period 1998-2014.