The Impact of Financial Inclusion on Monetary Policy: A Case Study in Vietnam

Abstract:This paper examines the impact of financial inclusion (FI) on monetary policy (MP) – a case study in Vietnam. The PCA method is used to construct a FI index- considered as a comprehensive measure of FI. To answer the main research questions, OLS and GLS models are used to analyze and to overcome the phenomenon of heteroskedasticity. Data is collected through secondary sources including World Bank and IMF reports (for the period 2004-2015). The results of empirical research indicate that there is a negative impact of FI on MP. Accordingly, FI transmits to more successful MP, making efficient financial intermediation and balances, contributing to a stable and sustainable economy. This study concludes that FI will enable monetary policy to extend its reach to the financially excluded and aid policy makers to make better predictions of movements in inflation.