The relationship between interest rate and inflation in Vietnam: An ARDL bound testing approach

Abstract

 This study is aimed at testing the long-term and short-term relationship between interest rate and inflation in Vietnam. Data used in the study are monthly series of selected indicators during the period from 2009 to 2017. Using ARDL bounds testing approach, the results show the presence of long-term positive relationship between interest rate and inflation in Vietnam. However, this relationahip is not one-to-one as postulation of Fisher efffect. In addition, this study finds the short-term relationship between interest rate and inflation. Specifically, in the short-term, 1% increase in inflation leads to 0.4% increase in nominal interest rate.