Impact of Monetary Policy on Private Investment: Evidence from Vietnam’s Provincial Data

Thuy T. Dang, Anh D. Pham and Diem N. Tran
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Thuy T. Dang: Institute for Indian and Southwest Asian Studies, Vietnam Academy of Social Sciences, Hanoi 100000, Vietnam
Anh D. Pham: Research Institute for Banking, Vietnam Banking Academy, Hanoi 100000, Vietnam
Diem N. Tran: Institute for Indian and Southwest Asian Studies, Vietnam Academy of Social Sciences, Hanoi 100000, Vietnam

Economies, 2020, vol. 8, issue 3, 1-15

Abstract: This study sheds new light on the relationship between monetary policy and private investment using Vietnam’s provincial data and a system generalized method of moment (GMM) framework. To capture monetary policy’s effect, different indicators, viz. money supply, domestic credit to the private sector, interest rate and exchange rate are examined. We find that private investment is positively affected by respective monetary policies through broad money, domestic credit and interest rate channels, yet no credible evidence regarding the exchange rate’s effect. In which, such a surprising co-movement between real interest rate and private investment was illuminated through analysis of the economy’s distinctive characteristics over the two development stages (pre- and post-2012). Another notable finding is that economic development prospects of localities, which attract great attention and cause an intense competition between domestic and foreign investors, appear to be a major barrier to investment decisions of private firms.

Keywords: monetary policy; private investment; system GMM; emerging market economies (search for similar items in EconPapers)
JEL-codes: E F I J O Q (search for similar items in EconPapers)
Date: 2020
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

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