MONEY AND INFLATION

Tutor: Đào Mai Hương

Tut Class: Tut2FB12
Group : 9
Members: Nguyễn Thị Thanh Huyền
Phạm Thị Hồng Nhung
Nguyễn Thị Suốt
Nguyễn Ngân Hà
OUTLINE
I. Overview
II. Inflation rate in Viet Nam for the past 10 years
III. Causes of inflation in Viet Nam
IV. Evidence that inflation is a monetary phenomenon
V. Forecast the trend of inflation in Viet Nam next year
VI. Impact on banking system
I. Overview
Inflation
 Inflation means a reduction
in the value of money;
in other words,
a rise in general price levels.
Inflation can be caused
by a variety of different factors.
I. Overview
Cost-push inflation
I. Overview
Demand-pull inflation
I. Overview
Budget deficits and inflation
As long as the deficit persists and the government
creates money to finance the deficit, money supply will
increase and inflation will be generated.
II. Inflation rate in Vietnam

Table: Inflation rates over last 10 years

II. Inflation rate in Vietnam

Source: www.gso.gov.vn
 III. Causes Inflation in Vietnam
Effect of the Great Depression of Global economy 2008, started
by the credit crisis in real estate and the collapse of banking
system in the US.
bad effect on import and export in Vietnam.
 Participating in WTO, the inflow of foreign currency : FDI,
FPI, ODA
 Strong development of banking system and credit growth in
2006 &2007
 Cost-push factors: prices of imported materials (oil, gas,
electricity, etc)
 Demand-pull factors: minimum wages
 Government budget deficit .
 IV. Evidence that inflation is a monetary
phenomenon.
 MONEY SUPPLY GROWTH

MS => AD shifts rightward

=> Output > Natural rate

=>UE rate < Natural rate

=> SRAS shifts leftward

or back to equilibrium.

=> PL

Figure 1: Response to a continually rising money supply.

 IV. Evidence that inflation is a monetary
phenomenon.
FISCAL POLICY
 G => PL
 TAX =>PL
BUT not
continuing
Increase
=> No inflation
IV. Evidence that inflation is a monetary
phenomenon.
SUPPLY SHOCK
Negative supply shock
ÞSRAS shifts leftward.
Þ PL t
Þ output < natural rate
Þ UE rate > natural rate
ÞSRAS2 shifts back
to SRAS1
Þ no inflation.
 IV. Evidence that inflation is a monetary
phenomenon.
“INFLATION IS ALWAYS AND EVERYWHERE A
MONETARY PHENOMENON.”
_Milton Friedman_
V. Forecast the trend of inflation in Viet Nam next year

Figure 4: Real GDP Growth of Vietnam and East Asia and Pacific
V. Forecast the trend of inflation in Viet
Nam next year
2014 - 2015: E&Y: GDP Growth of Vietnam is 6%
2016 – 2017: bounce back between 6% and 7% per year
Export:
September 2014: domestic export and import growth
increased by 14.2% and 12.8% compared to the same
period last year (higher than 4.4% and 5.3% of 2013).
Real estate: signs of recovery after a long frozen period
=> trend of inflation between now and 2015 in Vietnam
tend to increase and can be at 7%
VI. Impact on banking system
difficult for banks to raise funds
competition in increasing interest rate also make
banking system uncertain
shortage of funds to make loans
Use the higher interest rates, which have worsened the
investment environment of the bank, moral hazard
will occur
 short-term funds to make medium and long-term
loans over time => affect the liquidity of the banks, the
term risk and exchange rate risk occurs is unavoidable
 REFERENCES
 DTCK, 2007, “VốnngoạitiếptụcđổvềViệt Nam”. Available at:http://vietstock.vn/
PrintView.aspx?ArticleID=56829
 Minh,T., 2011, “FDI tang vọtsau 3 nămViệt Nam gianhập WTO”, Available at:http://
kinhdoanh.vnexpress.net/tin-tuc
/vi-mo/fdi-tang-vot-sau-3-nam-viet-nam-gia-nhap-wto-2711546.html
 General Statistic of Vietnam, http://www.gso.gov.vn/Default.aspx?tabid=217
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m.vneconomy.vn/thoi-su
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 Diep, B., “Chuyengia du bao lam phatduoi 5%”, viewed on November 22 2014,
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 Ministry of Finance, “Lam phat 2014 va 2015 tieptuc on dinh”, accessed on November 25 2014,
http://www.mof.gov.vn/portal/page/portal/mof_vn/1539781?pers_id=2177092&item_id=149273942
&p_details=1
 VnEconomy, “Ernst & Young ha du bao GDP Viet Nam”, viewed on November 25 2014,
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