Inflation & unemployment in vietnam

• 1.INFLATION & UNEMPLOYMENT IN VIETNAM WHAT IS THE CONNECTION ? Tut2-TR08 : Pham Que Duong Hoang Thi My Bui Thu Trang Doan Thi Thoa

2. Outline

• VIETNAM STATISTICS 1996-2010

• HOW DO INFLATION & UNEMPLOYMENT RELATE?

• • SHORT-RUN RELATIONSHIP

• • LONG-RUN RELATIONSHIP

3. VIETNAM STATISTICS 199 6-2010 Year Inflation rate(%) Unemployment rate(%) 1996 4.5 5.88 1997 3.6 6.01 1998 9.26.85 1999 0.1 6.74 2000 -0.6 6.42 2001 0.8 6.28 2002 4 6.01 2003 3 5.78 2004 9.55.6 2005 8.4 5.31 2006 6.6 4.82 2007 12.64.64 2008 4.5 4.65 2009 7 4.66 2010 4.5 4.65 4. ( Contd) 5. HOW DO INFLATION & UNEMPLOYMENT RELATE?

• Short-run relationship

• The Phillips phase

• The stagflation phase

• The recovery phase

• Long-run relationship

6. THE PHILLIPS CURVE

• Suggests anegative relationship between inflation and unemployment

• Expansionary monetary or Fiscal policy

• • Aggregate demand increases

• • Real GDP and price level are higher

• • Unemployment is lower

7. Quantity of Output 0

• The Model of Aggregate

• Demand and Aggregate Supply

Unemployment Rate (percent) 0 Inflation Rate (percent per year) Price Level ( b) The Phillips Curve Copyright 2004South-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. However, in Vietnam

• The Phillips curve only accounts for:

• 1996-1997

• 2000-2002

• 2003-2004

• 2006-2007

• =>The Phillips Phase

9. CHANGES IN EXPECTATION &THE STAGFLATION PHASE

• Higher price level ( higher inflation rate)

• Adjusted expectations of Firms & Workers

• Higher nominal wages

• A left-ward shift of the short-run AS curve

• Higher unemployment and inflation

• =>Stagflation phase : high inflation & increasing unemployment

10. Stagflation periods in Vietnam

• 1997-1998: Inflation rate increases by 5.6%

• Unemployment rate is 0.84% higher

• 2008-2009: Inflation rate increases by 2.5%

• Unemployment rate is 0.01% higher

11. THE RECOVERY PHASE

• Happens when Government attempts to stop the recession created in the stagflation phase.

• Results inlower unemploymentand higher prices, but the price rise is less than before, so theinflation rate is lower .

• For Vietnam:

• 1998-2000

• 2009-2010

12. LONG-RUN RELATIONSHIP

• In the 1960s, Friedman and Phelps concluded that inflation and unemployment areunrelatedin the long run

• The long-run Phillips curve isverticalat the natural rate of unemployment

• • • Natural rate of unemployment recognizes that theress always be some level of unemployment in an economy

• • • At this level, all unemployment will be voluntary

• => Monetary policy could be effective in the short run but not in the long run

13. Unemployment Rate 0 Natural rate of unemployment Inflation Rate Long-run Phillips curve Copyright 2004South-Western B High inflation Low inflation A 2. . . . but unemployment remains at its natural rate in the long run. 1. When theFed increasesthe growth rateof the moneysupply, therate of inflationincreases . . . 14.

• THANK YOU

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