INVESTIGATING THE RELATIONSHIP BETWEEN INFLATION AND ECONOMIC GROWTH IN VIETNAM: A THRESHOLD REGRESSION MODEL AND OPTIMAL INFLATION THRESHOLD

Abstract

This study investigates the relationship between inflation and economic growth in Vietnam, focusing on the application of a threshold regression model to identify the optimal inflation threshold. The relationship between inflation and growth has been a subject of debate in economic literature, with varying perspectives on whether inflation acts as a hindrance or a facilitator to economic growth. This study uses annual data from Vietnam's economy, applying a threshold regression model to explore the non-linear impact of inflation on economic growth. The results suggest that inflation has a non-linear effect, with an optimal inflation threshold beyond which further increases in inflation negatively impact economic growth. The findings contribute to the ongoing debate on the inflation-growth nexus, offering valuable insights for policymakers in Vietnam in formulating inflation-targeting policies. The optimal inflation threshold identified in this study could serve as a guide for future monetary and fiscal policy interventions.