Under The Condition Of Open Economy In Vietnam Effect Of Monetary Policy Analysis

The Doi Moi and economic system reform was practiced under the internationalenvironment with plenty of uncertainties, external risks were introduced into theoverall economy because of Vietnam’s small open economy characteristics and others.With the continuous deepening of reform and perfection of market economy system,the comprehensive meaning of monetary policy effectiveness was greatly differentfrom closed conditions. Therefore, not only the internal equilibrium but also theexternal equilibrium shall be achieved with effort based on comprehensiveconsiderations.Under the condition of open economy, the economic development of Vietnamhas made remarkable achievements. Trade structure has undergone profound changeswith the fast growing trade volume. Through more than twenty years’ endeavor andexploration, Vietnam has accumulated rich experience in the introduction andutilization of FDI and under strict control of foreign debt, maturing FDI managementhas provided powerful impetus for investment and economic growth. It shall benoticed that Vietnam adopts aspiration foreign exchange settlement system, whichresulted in relatively low level of foreign exchange reserve, with significant decreaseof foreign exchange reserve in recent years, Vietnam’s external debt solvency andintervention capability in foreign exchange market were negatively influenced.Based on identifying the overall features of Vietnam openness, first, this articleanalyzed the general effectiveness of Vietnam monetary policy by means of staticmodel. The static model analysis showed that the practical effect of Vietnammonetary policy poorly agreed with the ideal monetary policy effectiveness interval,moreover, monetary policy contributed greatly on macroeconomic turbulence whilefailed to achieve the expected effectiveness. On the basis of static model analysis, aVAR econometric model was employed to further analyze Vietnam monetary policyeffects on output and price aspects under open economy condition. VAR modelanalysis results showed that output and price effects of Vietnam monetary policy decreased with the increase of economic openness; moreover, external time lag wasthe major factor that discounted Vietnam monetary policy effectiveness.By coupling with related theories, this paper analyzed the factors that affectedthe effectiveness of Vietnam monetary policy under open economy condition andmajor impact factors included international transmission of inflation and deflation,choosing monetary policy intermediate target in dilemma, monetary policytransmission mechanism was being distorted and effectiveness of monetary policytools were weakened. Under the influence of impact factors mentioned above, theformulation and implementation of monetary policy in Vietnam faced severechallenges.Finally, based on theoretical and empirical analysis, this article brought forwardrelated policy suggestion regarding the improvement of Vietnam monetary policyeffectiveness from monetary policy targets, decision, tools, transmission mechanismas well as financial system reform and supervision so as to provide certain researchand reference value.