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Measuring central bank independence for Vietnam

Measuring central bank independence for Vietnam. Recent instabilities in conducting monetary policy in Vietnam’s macroeconomics demand instant preparations for adopting a new framework: Inflation targeting. In fact, the State bank of Vietnam has shown the International Monetary Fund its willingness to adopt this framework over the past 5 years since 2005. | Journal of Economics and Development, Vol.16, No.1, April 2014, pp. 40-59 ISSN 1859 0020 Measuring Central Bank Independence for Vietnam Duong Thi Thuy Nga Academy of Finance, Vietnam Email: duongnga.aof@gmail.com Do Van Vinh Ministry of Agricultural and Rural Development, Vietnam Email: dovinh2612@gmail.com Abstract Recent instabilities in conducting monetary policy in Vietnam’s macroeconomics demand instant preparations for adopting a new framework: Inflation targeting. In fact, the State bank of Vietnam has shown the International Monetary Fund its willingness to adopt this framework over the past 5 years since 2005. In order to prepare for successfully adopting this framework and reaching price stability, firstly, and most importantly, the central bank needs to have a certain degree of independence. In fact, the negative relationship between the degree of central bank independence (CBI) and inflation is found in both industrialised countries and developing countries. In this study, legal central bank independence indices are calculated for Vietnam according to the newest and most popular methods of Grilli, Masciandaro, and Tabellini (1991) and Cukierman (1992). We compare and conclude that the central bank independence index of Vietnam is lower than that of other emerging countries. In these countries, like Vietnam, the Central bank is a member of Government. Suggestions for the State bank of Vietnam in terms of improvements in lending regulations to government, thus, are provided. Keywords: Central bank independence, inflation targeting, legal institution, monetary policy, Vietnam. Journal of Economics and Development 40 Vol. 16, No.1, April 2014 1. Introduction bel, 2007; Batini and Laxton, 2008; Vega and Winkelreid, 2005; Corbo et al., 2001; Kuttner and Posen, 2001) have found improvements to inherent problems in emerging countries, such as reductions in the inflation level, in inflation volatility, and the decline in the persistence of inflation. .