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http://dx.doi.org/10.13106/jafeb.2021.vol8.no2.0791

The Impact of Financial Integration on Monetary Policy Independence: The Case of Vietnam  

TRAN, Ha Hong (Faculty of Banking, Banking University of Ho Chi Minh City)
LE, Thao Phan Thi Dieu (Faculty of Finance, Banking University of Ho Chi Minh City)
NGUYEN, Vinh Thi Hong (Faculty of International Economics, Banking University of Ho Chi Minh City)
LE, Dao Thi Anh (Faculty of Banking, Banking University of Ho Chi Minh City)
TRINH, Nam Hoang (Faculty of Management Information System, Banking University of Ho Chi Minh City)
Publication Information
The Journal of Asian Finance, Economics and Business / v.8, no.2, 2021 , pp. 791-800 More about this Journal
Abstract
Along with the trend of financial globalization, Vietnam has undergone a process of increasing financial integration. The great capital inflow poses a problem for the monetary policy's ability to follow a planned target during the changes in the global financial markets. This paper aims to examine the impact of financial integration on monetary policy independence in Vietnam and investigate the role of foreign exchange reserves on this relationship. The research borrows from Mundell-Fleming's Trilemma theory. The results show that increasing financial integration reduces the independence of monetary policy in the short term, and foreign exchange reserves have not shown an apparent role in Vietnam. In addition, increasing exchange rate stability has a negative impact on the independence of monetary policy, but it has an impact on growing market confidence and partly supporting the management process of monetary policy in the short term. Therefore, in the long run, Vietnam needs to allow exchange rate flexibility more, but there should not be sudden changes; the size of foreign exchange reserves should be strengthened to facilitate the implementation of an independent monetary policy with an obvious impact in the context of an increasing scale of international capital flows in the future.
Keywords
Monetary Policy; Financial Integration; Foreign Exchange Reserves; ARDL Model;
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