THE INTEREST RATE CHANNEL IN THE TRANSMISSION OF MONETARY POLICY IN IN VIETNAM

Interest rate is one of the effective instruments of implementing monetary policy, which central banks use to regulate the currency flow, consequently stabilizing inflation and stimulating economic growth. Hence, this study aims to examine the levels of transmission of interest rate to the price factors in Vietnam's economy during the period from 2005 to 2013 by SVAR models. The results indicate an existence of long-term relationship between interest rates using co-integration test. Between interest ratre and economic variables, only one-way causality from consumer price index to interest rate is found. Results from shock response and variance decomposition test show that the shocks of interest rate affect most of economic factors. However, only money supply and stock price index are strongly affected in all four periods