A. What are the Key Drivers of Inflation in Vietnam?
A first step involved OLS estimation of an equation explaining CPI headline inflation over
the period 2000Q1–2012Q2 as a function of GDP growth, growth in credit to the economy,
percentage changes in the nominal effective exchange rate and in the import price deflator,
and the nominal interest rate. Percentage changes in the import price deflator is used as a
proxy for foreign price inflation, and total credit to the economy is used a proxy for money
supply because it yielded results that were more statistically significant and robust than the
standard money supply measures. The Quandt-Andrews tests for structural break, however,
provided strong evidence for structural breaks in 2004Q1 and in 2007Q4.