INFLATION & UNEMPLOYMENT IN VIETNAM WHAT IS THE CONNECTION ? Tut2-TR08 : Pham Que Duong Hoang Thi My Bui Thu Trang Doan Th...
Outline <ul><li>VIETNAM STATISTICS 1996-2010 </li></ul><ul><li>HOW DO INFLATION & UNEMPLOYMENT RELATE? </li></ul><ul><ul><...
VIETNAM STATISTICS 199 6-2010 Year Inflation rate(%) Unemployment rate(%) 1996 4.5 5.88 1997 3.6 6.01 1998 9.2  6.85 1999 ...
( Cont’d)
HOW DO INFLATION & UNEMPLOYMENT RELATE? <ul><li>Short-run relationship  </li></ul><ul><li>The Phillips phase </li></ul><ul...
THE PHILLIPS CURVE <ul><li>Suggests a  negative   relationship between inflation and unemployment </li></ul><ul><li>Expans...
Quantity of Output 0 <ul><li>The Model of Aggregate </li></ul><ul><li>Demand and Aggregate Supply </li></ul>Unemployment R...
However, in Vietnam… <ul><li>The Phillips curve only accounts for: </li></ul><ul><li>1996-1997 </li></ul><ul><li>2000-2002...
CHANGES IN EXPECTATION &  THE STAGFLATION PHASE <ul><li>Higher price level ( higher inflation rate) </li></ul><ul><li>Adju...
Stagflation periods in Vietnam <ul><li>1997-1998: Inflation rate increases by 5.6% </li></ul><ul><li>Unemployment rate is ...
THE RECOVERY PHASE <ul><li>Happens when Government attempts to stop the recession created in the stagflation phase. </li><...
LONG-RUN RELATIONSHIP <ul><li>In the 1960s, Friedman and Phelps concluded that inflation and unemployment are  unrelated  ...
Unemployment Rate 0 Natural rate of unemployment Inflation Rate Long-run Phillips curve Copyright © 2004  South-Western B ...
<ul><li>THANK YOU </li></ul>Q & A
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Inflation & unemployment in vietnam

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Inflation & unemployment in vietnam

  1. 1. INFLATION & UNEMPLOYMENT IN VIETNAM WHAT IS THE CONNECTION ? Tut2-TR08 : Pham Que Duong Hoang Thi My Bui Thu Trang Doan Thi Thoa
  2. 2. Outline <ul><li>VIETNAM STATISTICS 1996-2010 </li></ul><ul><li>HOW DO INFLATION & UNEMPLOYMENT RELATE? </li></ul><ul><ul><li>SHORT-RUN RELATIONSHIP </li></ul></ul><ul><ul><li>LONG-RUN RELATIONSHIP </li></ul></ul>
  3. 3. VIETNAM STATISTICS 199 6-2010 Year Inflation rate(%) Unemployment rate(%) 1996 4.5 5.88 1997 3.6 6.01 1998 9.2 6.85 1999 0.1 6.74 2000 -0.6 6.42 2001 0.8 6.28 2002 4 6.01 2003 3 5.78 2004 9.5 5.6 2005 8.4 5.31 2006 6.6 4.82 2007 12.6 4.64 2008 4.5 4.65 2009 7 4.66 2010 4.5 4.65
  4. 4. ( Cont’d)
  5. 5. HOW DO INFLATION & UNEMPLOYMENT RELATE? <ul><li>Short-run relationship </li></ul><ul><li>The Phillips phase </li></ul><ul><li>The stagflation phase </li></ul><ul><li>The recovery phase </li></ul><ul><li>Long-run relationship </li></ul>
  6. 6. THE PHILLIPS CURVE <ul><li>Suggests a negative relationship between inflation and unemployment </li></ul><ul><li>Expansionary monetary or Fiscal policy </li></ul><ul><ul><li>Aggregate demand increases </li></ul></ul><ul><ul><li>Real GDP and price level are higher </li></ul></ul><ul><ul><li>Unemployment is lower </li></ul></ul>
  7. 7. Quantity of Output 0 <ul><li>The Model of Aggregate </li></ul><ul><li>Demand and Aggregate Supply </li></ul>Unemployment Rate (percent) 0 Inflation Rate (percent per year) Price Level ( b) The Phillips Curve Copyright © 2004 South-Western Short-run aggregate supply Phillips curve Low aggregate demand High aggregate demand (output is 8,000) B 4 6 (output is 7,500) A 7 2 8,000 (unemployment is 4%) 106 B (unemployment is 7%) 7,500 102 A
  8. 8. However, in Vietnam… <ul><li>The Phillips curve only accounts for: </li></ul><ul><li>1996-1997 </li></ul><ul><li>2000-2002 </li></ul><ul><li>2003-2004 </li></ul><ul><li>2006-2007 </li></ul><ul><li>=> The Phillips Phase </li></ul>
  9. 9. CHANGES IN EXPECTATION & THE STAGFLATION PHASE <ul><li>Higher price level ( higher inflation rate) </li></ul><ul><li>Adjusted expectations of Firms & Workers </li></ul><ul><li>Higher nominal wages </li></ul><ul><li>A left-ward shift of the short-run AS curve </li></ul><ul><li>Higher unemployment and inflation </li></ul><ul><li>=> Stagflation phase : high inflation & increasing unemployment </li></ul>
  10. 10. Stagflation periods in Vietnam <ul><li>1997-1998: Inflation rate increases by 5.6% </li></ul><ul><li>Unemployment rate is 0.84% higher </li></ul><ul><li>2008-2009: Inflation rate increases by 2.5% </li></ul><ul><li>Unemployment rate is 0.01% higher </li></ul>
  11. 11. THE RECOVERY PHASE <ul><li>Happens when Government attempts to stop the recession created in the stagflation phase. </li></ul><ul><li>Results in lower unemployment and higher prices, but the price rise is less than before, so the inflation rate is lower . </li></ul><ul><li>For Vietnam: </li></ul><ul><li>1998-2000 </li></ul><ul><li>2009-2010 </li></ul>
  12. 12. LONG-RUN RELATIONSHIP <ul><li>In the 1960s, Friedman and Phelps concluded that inflation and unemployment are unrelated in the long run </li></ul><ul><li>The long-run Phillips curve is vertical at the natural rate of unemployment </li></ul><ul><ul><ul><li>Natural rate of unemployment recognizes that there’ss always be some level of unemployment in an economy </li></ul></ul></ul><ul><ul><ul><li>At this level, all unemployment will be voluntary </li></ul></ul></ul><ul><li>=> Monetary policy could be effective in the short run but not in the long run </li></ul>
  13. 13. Unemployment Rate 0 Natural rate of unemployment Inflation Rate Long-run Phillips curve Copyright © 2004 South-Western B High inflation Low inflation A 2. . . . but unemployment remains at its natural rate in the long run. 1. When the Fed increases the growth rate of the money supply, the rate of inflation increases . . .
  14. 14. <ul><li>THANK YOU </li></ul>Q & A

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