Using the DSGE model and the Bayesian technique for analyzing the responses of the interest rate channel in Vietnam

Abstract

This paper employs the dynamic stochastic general equilibrium (DSGE) model and the Bayesian technique for
simulating the relationship between macroeconomic and monetary variables in Vietnam, and then, analyzing the
responses of the interest rate channel in the case of shocks in aggregate demand (GDP) and price (inflation). The
results show that Bayesian estimation improves the estimation of some major parameters compared to the prior
information (initial assumptions). The interest rate channel in the monetary policy transmission is more effective
in controlling inflation and therefore contributes significantly to macroeconomic stability.