Dokument

Summary:
The empirical results add to the literature on monetary policy in Laos with five important findings, which are: i) based on log-­levels estimation, we find that money Granger-­causes output, which lends support to the proposition that the BoL is likely to be successful in stabilizing the business cycle; ii) the investigation of the money demand function provides strong evidence that the demand function in Laos is stable which implies that the BoL is likely to be successful in controlling inflation by managing the money supply; iii) the results of the impulse response analysis find that the responses of retail interest rates to a change in the policy rate are very small, which suggest that the likelihood of the BoL using the interest rate channel to achieve the desired impact on real economy and inflation is limited at this time; iv) the investigation of inflation determinants suggests that real GDP, money supply and the exchange rate are important factors in explaining the price level in the long-­run and in particular, the money variable is significant in both the long and the short-­run, this supports the proposition that the BoL is likely to be successful in controlling inflation through the management of money supply; and lastly, v) the analysis using a monetary model of the exchange rate does not appear to be very useful in explaining the fundamental forces that drive the exchange rate between the Lao Kip and U.S. dollar. Based on some of the findings, it is encouraging to know that through monetary policy, the central bank, if it chooses to, may be successful in stabilizing the business cycle and controlling inflation. This would support the government’s objective of achieving a target output growth of 8 percent and inflation to be under 2 digits. This further emphasizes the importance of monetary policy in the management of Laos’ economic environment.

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