Price Regulation and Inflation Control in Vietnam

This paper evaluates the structural effects of price regulations on inflation control in Vietnam and conducts market-based inflation forecast assuming different sets of macroeconomic scenarios. We apply SVAR models and the forecasting technique on the quarterly data for the period 2000 - 2015. The empirical results show two different regimes of price policy in response to commodity price fluctuations while the second stage was characterized by more flexible and relaxed price controls associated with the Vietnam accession to the WTO in 2007. There is not convincing evidence that regulating prices help prevent commodity price volatility and accelerating inflation. Although their short-term effects via expectation channel appear to be attractive, in the long run, they may cause higher prices with inflationary consequence. The forecasting process reveals that Vietnam may experience higher price fluctuations and increasing inflation in the period of 2016 – 2018. However, a conservative growth target and good management of monetary aggregate may significantly stabilize prices and contain accelerating inflation.