THE EFFECTS OF THE UNITED STATES’ UNCONVENTIONAL MONETARY POLICY ON FINANCIAL MARKET AND REAL ECONOMY: EVIDENCE IN VIETNAM

THE EFFECTS OF THE UNITED STATES’ UNCONVENTIONAL MONETARY POLICY ON FINANCIAL MARKET AND REAL ECONOMY: EVIDENCE IN VIETNAMTHE EFFECTS OF THE UNITED STATES’ UNCONVENTIONAL MONETARY POLICY ON FINANCIAL MARKET AND REAL ECONOMY: EVIDENCE IN VIETNAMTHE EFFECTS OF THE UNITED STATES’ UNCONVENTIONAL MONETARY POLICY ON FINANCIAL MARKET AND REAL ECONOMY: EVIDENCE IN VIETNAMTHE EFFECTS OF THE UNITED STATES’ UNCONVENTIONAL MONETARY POLICY ON FINANCIAL MARKET AND REAL ECONOMY: EVIDENCE IN VIETNAMTHE EFFECTS OF THE UNITED STATES’ UNCONVENTIONAL MONETARY POLICY ON FINANCIAL MARKET AND REAL ECONOMY: EVIDENCE IN VIETNAMTHE EFFECTS OF THE UNITED STATES’ UNCONVENTIONAL MONETARY POLICY ON FINANCIAL MARKET AND REAL ECONOMY: EVIDENCE IN VIETNAMTHE EFFECTS OF THE UNITED STATES’ UNCONVENTIONAL MONETARY POLICY ON FINANCIAL MARKET AND REAL ECONOMY: EVIDENCE IN VIETNAMTHE EFFECTS OF THE UNITED STATES’ UNCONVENTIONAL MONETARY POLICY ON FINANCIAL MARKET AND REAL ECONOMY: EVIDENCE IN VIETNAMTHE EFFECTS OF THE UNITED STATES’ UNCONVENTIONAL MONETARY POLICY ON FINANCIAL MARKET AND REAL ECONOMY: EVIDENCE IN VIETNAMTHE EFFECTS OF THE UNITED STATES’ UNCONVENTIONAL MONETARY POLICY ON FINANCIAL MARKET AND REAL ECONOMY: EVIDENCE IN VIETNAMTHE EFFECTS OF THE UNITED STATES’ UNCONVENTIONAL MONETARY POLICY ON FINANCIAL MARKET AND REAL ECONOMY: EVIDENCE IN VIETNAMTHE EFFECTS OF THE UNITED STATES’ UNCONVENTIONAL MONETARY POLICY ON FINANCIAL MARKET AND REAL ECONOMY: EVIDENCE IN VIETNAMTHE EFFECTS OF THE UNITED STATES’ UNCONVENTIONAL MONETARY POLICY ON FINANCIAL MARKET AND REAL ECONOMY: EVIDENCE IN VIETNAMTHE EFFECTS OF THE UNITED STATES’ UNCONVENTIONAL MONETARY POLICY ON FINANCIAL MARKET AND REAL ECONOMY: EVIDENCE IN VIETNAMTHE EFFECTS OF THE UNITED STATES’ UNCONVENTIONAL MONETARY POLICY ON FINANCIAL MARKET AND REAL ECONOMY: EVIDENCE IN VIETNAMTHE EFFECTS OF THE UNITED STATES’ UNCONVENTIONAL MONETARY POLICY ON FINANCIAL MARKET AND REAL ECONOMY: EVIDENCE IN VIETNAMTHE EFFECTS OF THE UNITED STATES’ UNCONVENTIONAL MONETARY POLICY ON FINANCIAL MARKET AND REAL ECONOMY: EVIDENCE IN VIETNAMTHE EFFECTS OF THE UNITED STATES’ UNCONVENTIONAL MONETARY POLICY ON FINANCIAL MARKET AND REAL ECONOMY: EVIDENCE IN VIETNAMTHE EFFECTS OF THE UNITED STATES’ UNCONVENTIONAL MONETARY POLICY ON FINANCIAL MARKET AND REAL ECONOMY: EVIDENCE IN VIETNAMTHE EFFECTS OF THE UNITED STATES’ UNCONVENTIONAL MONETARY POLICY ON FINANCIAL MARKET AND REAL ECONOMY: EVIDENCE IN VIETNAMTHE EFFECTS OF THE UNITED STATES’ UNCONVENTIONAL MONETARY POLICY ON FINANCIAL MARKET AND REAL ECONOMY: EVIDENCE IN VIETNAMTHE EFFECTS OF THE UNITED STATES’ UNCONVENTIONAL MONETARY POLICY ON FINANCIAL MARKET AND REAL ECONOMY: EVIDENCE IN VIETNAMTHE EFFECTS OF THE UNITED STATES’ UNCONVENTIONAL MONETARY POLICY ON FINANCIAL MARKET AND REAL ECONOMY: EVIDENCE IN VIETNAMTHE EFFECTS OF THE UNITED STATES’ UNCONVENTIONAL MONETARY POLICY ON FINANCIAL MARKET AND REAL ECONOMY: EVIDENCE IN VIETNAMTHE EFFECTS OF THE UNITED STATES’ UNCONVENTIONAL MONETARY POLICY ON FINANCIAL MARKET AND REAL ECONOMY: EVIDENCE IN VIETNAMTHE EFFECTS OF THE UNITED STATES’ UNCONVENTIONAL MONETARY POLICY ON FINANCIAL MARKET AND REAL ECONOMY: EVIDENCE IN VIETNAMTHE EFFECTS OF THE UNITED STATES’ UNCONVENTIONAL MONETARY POLICY ON FINANCIAL MARKET AND REAL ECONOMY: EVIDENCE IN VIETNAMTHE EFFECTS OF THE UNITED STATES’ UNCONVENTIONAL MONETARY POLICY ON FINANCIAL MARKET AND REAL ECONOMY: EVIDENCE IN VIETNAMTHE EFFECTS OF THE UNITED STATES’ UNCONVENTIONAL MONETARY POLICY ON FINANCIAL MARKET AND REAL ECONOMY: EVIDENCE IN VIETNAMTHE EFFECTS OF THE UNITED STATES’ UNCONVENTIONAL MONETARY POLICY ON FINANCIAL MARKET AND REAL ECONOMY: EVIDENCE IN VIETNAMTHE EFFECTS OF THE UNITED STATES’ UNCONVENTIONAL MONETARY POLICY ON FINANCIAL MARKET AND REAL ECONOMY: EVIDENCE IN VIETNAMTHE EFFECTS OF THE UNITED STATES’ UNCONVENTIONAL MONETARY POLICY ON FINANCIAL MARKET AND REAL ECONOMY: EVIDENCE IN VIETNAMTHE EFFECTS OF THE UNITED STATES’ UNCONVENTIONAL MONETARY POLICY ON FINANCIAL MARKET AND REAL ECONOMY: EVIDENCE IN VIETNAM

MINISTRY OF EDUCATION AND TRAINING STATE BANK OF VIET NAM HO CHI MINH UNIVERSITY OF BANKING

NGO SY NAM

THE EFFECTS OF THE UNITED STATES’ UNCONVENTIONAL MONETARY POLICY ON FINANCIAL MARKET AND REAL ECONOMY:

MINISTRY OF EDUCATION AND TRAINING STATE BANK OF VIET NAM HO CHI MINH UNIVERSITY OF BANKING

NGO SY NAM

THE EFFECTS OF THE UNITED STATES’ UNCONVENTIONAL MONETARY POLICY ON FINANCIAL MARKET AND REAL ECONOMY:

EVIDENCE IN VIETNAM

PH.D THESIS

ACADEMIC ADVISORS : Assoc Prof Dr DOAN THANH HA

HO CHI MINH CITY, APRIL – 2024

I am Ngo Sy Nam, Ph.D Student, Course 25, majoring in Finance and Banking at Ho Chi Minh University of Banking

This thesis has never been submitted for a doctoral degree at any institution This thesis is the author’s independent research work The research results are honest, and there is no content published previously or implemented by others except for the quotations fully cited in the thesis

I am responsible for the content of this study

Ph.D Student

Ngo Sy Nam

DECLARATION

I want to express my appreciation to the Ho Chi Minh University of Banking I have addressed the need to provide me with a nurturing academic environment and opportunities for personal growth Their commitment to excellence in education has been instrumental in shaping my intellect and preparing me for future endeavors

I am deeply grateful to Associate Professor Dr Doan Thanh Ha, my supervisor, for his invaluable guidance, mentorship, and encouragement throughout my research and academic pursuits Their expertise and constructive feedback have played a crucial role in shaping the direction of my studies and enhancing the quality of my work

I sincerely thank my family, especially my wife, for her unwavering support, love, and understanding Their constant encouragement and belief in my abilities have been a source of strength and motivation, enabling me to overcome challenges and strive for excellence

To everyone who has been part of my journey, directly or indirectly, your support and belief in my potential have been instrumental in my academic and personal growth I am deeply grateful for your presence in my life.

Ph.D Student Ngo Sy Nam ACKNOWLEDGEMENTS

Words Meanings

AAR Average abnormal return ADF Augmented Dickey-Fuller

AIC Akaike information criterion

BRICS Brazil, Russia, India, China, and South Africa CAAR Cumulative Average Abnormal Return

CAR Cumulative abnormal return CBB Central bank balance sheet

CBOE Chicago Board Options Exchange

CMP Conventional monetary policy, CPI Consumer Price Index

DCF Discounted cash flow ECB European central bank EMEs Emerging economy markets EMH Efficient Market Hypothesis ESM Event Study Methodology

FFR Federal funds rate

FOMC Federal Open Market Committee FOREX Exchange rate

GDP Gross Domestic Product GFC Global financial crisis

HOSE Ho Chi Minh City Stock Exchange IMF International monetary fund

IRR Interest rate

IS - LM Investment – Savings - Liquidity preference – Money Supply LSAP Large-scale asset purchase

SSR Shadow short rate

SVAR Structural vector autoregression TAF Term Auction Facility

UMP Unconventional monetary policy

VAR Vector autoregression VIX CBOE volatility index

1.4THE SCOPE OF THIS STUDY 10

1.5RESEARCH METHODOLOGIES AND DATA 12

1.5.1 Research methodology 12

1.5.1.1Event study method 12

1.5.1.2Structural vector autoregression model 12

1.5.2 Research data 14

1.6RESEARCH CONTRIBUTIONS 14

1.7THE STRUCTURE OF THE STUDY 16

2CHAPTER 2: THEORETICAL FRAMEWORK AND LITERATURE REVIEW 18

2.1CONCEPTUAL FRAMEWORK 18

2.1.1 Conventional monetary policy 18

2.1.1.1Definition 18

2.1.1.2Conventional monetary policy tools 18

2.1.1.3Transmission mechanism of conventional monetary policy 21

2.1.2 Unconventional monetary policy 24

2.1.2.1Definition 24

2.1.2.2Unconventional monetary policy tools 25

2.1.2.3Transmission mechanism of unconventional monetary policy 29

2.1.2.4International transmission of unconventional monetary policy 33

2.1.2.5The differences between UMP and CMP 36

TABLE OF CONTENTS

2.1.3 Financial market and real economy 38

2.1.3.1Financial market 38

2.1.3.2Real economy 41

2.2THEORETICAL FOUNDATIONS OF THE STUDY 42

2.2.1 The Efficient Market Hypothesis 42

2.2.2 Taylor rule 43

2.2.3 Asset pricing by discounted cash flow 44

2.2.4 Milton Friedman's money demand theory 45

2.2.5 Tobin’s q theory 47

2.2.6 The Mundell-Fleming-Dornbusch model 47

2.3LITERATURE REVIEW 49

2.3.1 The effects of unconventional monetary policy 49

2.3.2 The methodologies review 57

2.3.2.1Event study method 57

2.3.2.2Vector autoregressive model approach 61

2.3.3 Research gap identification 66

3CHAPTER 3: RESEARCH METHODOLOGY AND DATA 69

3.1RESEARCH METHODOLOGY 69

3.1.1 Event study method 69

3.1.1.1Introduction to event study method 69

3.1.1.2The steps of event study method 70

3.1.2 Structural vector autoregressive model 77

3.1.2.1Introduction to structural vector autoregressive model 77

3.1.2.2Proposed research model 78

3.1.2.3Research variables 80

3.1.2.4Research procedures 84

3.2RESEARCH DATA 85

3.2.1 Data for ESM 85

3.2.2 Data for SVAR model 87

3.3RESEARCH HYPOTHESES 89

4CHAPTER 4: RESEARCH RESULTS 93

4.1UNITED STATES’ UNCONVENTIONAL MONETARY POLICY DURING FROM 2007 TO 2022 93

4.1.1 Federal Funds Rate in the US from 2007 to 2022 93

4.1.2 Large-Scale Asset Purchase Programs from 2007 to 2022 95

4.1.3 Forward guidance from 2007 to 2022 97

4.2OVERVIEW OF THE FINANCIAL MARKET AND ECONOMY IN VIETNAM FROM 2000 TO 2022 98

4.2.1 Overview of the financial market in Vietnam from 2000 to 2022 98

4.2.1.1Market size during the period from 2000 to 2022 98

4.2.1.2Fluctuations in the stock market during the period from 2000 to 2022100 4.2.2 Overview of Vietnamese economy from 2000 to 2022 103

4.2.2.1Economic growth of Vietnam from 2000 to 2022 103

4.2.2.2Inflation in Vietnam during the period from 2000 to 2022 104

4.3RESEARCH RESULTS FROM ESM 105

4.3.1 The reaction of the market to the US’s UMP announcement 105

4.3.1.1Abnormal average return of the market 105

4.3.1.2Cumulative average abnormal return of the market 108

4.3.2 The reaction of different sectors to the US’s UMP announcement 110

4.3.2.1Abnormal average return of different sectors 110

4.3.2.2Cumulative average abnormal return of different sectors 112

4.3.3 Robustness test 116

4.4RESEARCH RESULTS FROM SVAR 119

4.4.1 Correlation between variables 119

4.4.2 Data statistical description 125

4.4.3 The results from SVAR Model 126

4.4.3.1Unit root test results 126

4.4.3.2The optimal lag-length selection results 126

4.4.3.3Diagnostic testing results 127

4.4.3.4Impulse response results 128

4.4.3.5Variance decomposition results 131

4.4.4 SVAR results for the GFC and during pandemic crisis 133

4.4.5 Robustness test 135

4.5DISCUSSING RESEARCH RESULTS 138

4.5.1 The reaction of the financial market 138

4.5.1.1Reaction of the financial market to US’s UMP announcements 138

4.5.1.2Differences in financial market reactions during the GFC and COVID-19 period 139 4.5.2 The response of the real economy 140

4.5.2.1The response of the real economy to the shock 140

4.5.2.2The differences in response of the real economy during the GFC and

5.3.1 Constructing and implementing unconventional monetary policies suitable for the context of Vietnam 151

5.3.2 Developing the financial market to increase the attraction of foreign investment flows 153

5.3.3 Monitoring the US’s monetary policy and adjusting its policy to respond to global economic developments 154

5.3.4 Focus on managing the potential risks of foreign capital flows and market volatility 156

5.3.5 Building resilience and promoting economic self-sufficiency in the face of external shocks 157

5.3.6 Investors consider selecting investment opportunities in the context of monetary policy fluctuations 158

5.4LIMITATIONS AND SUGGESTIONS FOR FURTHER RESEARCH 159

6LIST OF REFERENCE i

7APPENDIX xv

Table 2.1: Unconventional monetary policy tools used by major central banks 26

Table 2.2: The differences between CMP and UMP 37

Table 2.3: Studies using the ESM relate to the US’s UMP policy announcements impacting financial markets 60

Table 2.4: Studies using the VAR approach relate to the US’s UMP policy announcements impacting financial markets and the real economy 64

Table 3.1: Expected correlations between variables 82

Table 3.2: Event dates during the global financial crisis period 85

Table 3.3: Event dates during the COVID-19 pandemic period 86

Table 3.4: Description of variables and source of data 88

Table 4.1: FFR adjustments during the Global Financial Crisis 93

Table 4.2: FFR adjustments during the COVID-19 pandemic 94

Table 4.3: The AAR of the market around the US’s UMP event dates 105

Table 4.4: The CAAR of the market around the US’s UMP event dates 108

Table 4.5: AAR of different sectors during the GFC 110

Table 4.6: AAR of different sectors during the COVID-19 pandemic 111

Table 4.7: CAAR of sectors during the global financial crisis 112

Table 4.8: CAAR of sectors during the COVID-19 pandemic 113

Table 4.9: Data statistical description 125

Table 4.10: Unit Root Test Result (ADF test) 126

Table 4.11: Lag order for each model according to selected criteria 126

Table 4.12: Residual serial correlation LM tests 128

Table 4.13: Contribution of CBB shocks to the forecast variance decomposition of GDP 134

LIST OF TABLES

Figure 1.1: Vietnam KOF Globalization Index 6

Figure 1.2: The research methods used to address the research objectives 13

Figure 2.1: Monetary policy transmission mechanism 21

Figure 2.2: Transmission channel of Quantitative Easing 32

Figure 2.3: International transmission mechanism of unconventional monetary policy 34 Figure 2.4: Some frontier markets in the world 40

Figure 2.5: Three level of efficient market 43

Figure 2.6: Summarize the related research 55

Figure 3.1: Time lengths for window frames used in the event study method 71

Figure 4.1: Fed total assets from 2007 to 2022 96

Figure 4.2: The number of listed companies on the HOSE during the period from 2007 to 2022 99

Figure 4.3: The market capitalization during the period from 2000 to 2022 100

Figure 4.4: VNINDEX and the total trading volume during the period from 2000 to 2022 101

Figure 4.5: VNINDEX and trading volume during the global financial crisis period 101

Figure 4.6: VNINDEX and trading volume during the COVID-19 pandemic 102

Figure 4.7: GDP growth of Vietnam from 2000 to 2022 103

Figure 4.8: Inflation in Vietnam from 2000 to 2022 104

Figure 4.9: The AAR of the market around the US’s UMP event dates 107

Figure 4.10: CAAR of the market during the GFC period and COVID-19 period 109

Figure 4.11: CAAR of sectors during the GFC and COVID-19 periods 115

Figure 4.12: CAAR of the market during the GFC period and COVID-19 period by the

Figure 4.16: Correlation between shadow short rate of the US and real GDP growth in

Vietnam 121

Figure 4.17: Correlation between the shadow short rate of the US and inflation in Vietnam 122

Figure 4.18: Correlation between the VIX index and real GDP growth in Vietnam 123

Figure 4.19: Correlation between VIX index and inflation in Vietnam 123

Figure 4.20: Correlation between capital flow and real GDP growth in Vietnam 124

Figure 4.21: Correlation between capital flow and inflation in Vietnam 125

Figure 4.22: Inverse roots of AR characteristic polynomial 127

Figure 4.23: Responses of GDP and CPI to the US’s UMP shock 128

Figure 4.24: Responses of GDP and CPI to the VIX shocks 129

Figure 4.25: Responses of GDP and CPI to the CF shock 129

Figure 4.26: Responses of equity returns to the CF shocks 130

Figure 4.27: Responses of GDP and CPI to the SP shocks 130

Figure 4.28: Responses of GDP and CPI to the FOREX and IRR shocks 131

Figure 4.29: Responses of IRR to the US’s UMP shocks 131

Figure 4.30: Contribution of the US’s UMP shocks to the forecast variance decomposition of GDP 132

Figure 4.31: Contribution of the US’s UMP shocks to the forecast variance decomposition of CPI 133

Figure 4.32: The response of GDP to the US’s UMP shock in the period of GFC and during the pandemic crisis 133

Figure 4.33: The response of CPI to the US’s UMP shock in the period of GFC and during the pandemic crisis 134

Figure 4.34: Responses of GDP to the SSR, VIX and CF shocks 136

Figure 4.35: Responses of CPI to the SSR, VIX and CF shocks 136

During the Global Financial Crisis of 2007 – 2008 and the COVID-19 pandemic, conventional monetary policies were ineffective as the policy rates of central banks approached zero bounds In this context, central banks of developed countries have resorted to unconventional monetary policies (UMP) with tools such as quantitative easing, forward guidance, etc This study examines the impact of the US’s UMP on the financial market and the real economy of Vietnam from 2007 to 2022 As a small, open country that is part of the frontier market group and is increasingly integrating with the world, Vietnam is somewhat affected by the monetary policies of developed countries, especially the US

The event study method examines the stock market's immediate reactions to the Fed's official UMP announcements In addition, with the SVAR model, the study examines the impact of the US’s UMP, represented by the Fed’s balance sheet (CBB) indicator, on the real economy of Vietnam, measured by two variables: GDP growth and inflation The research results show that the Vietnamese stock market positively reacts to the information about the US’s UMP, as represented by two positive indicators, AAR and CAAR, which are positive with different time windows in different crisis periods However, the results also show that during the GFC period, the market reacted immediately when the information was announced, while during the COVID-19 pandemic period, the market reacted earlier Besides, the increase in the market during the COVID-19 period was more significant than that of the GFC period This difference may be due to UMP's context, scale, and implementation time in the two periods The results of individual sectors also positively react to the information of the US’s UMP The results of the SVAR model with lag eight also show that an expansionary monetary policy by unconventional measures leads to an increase in Vietnam’s output, and price indexes have increased significantly In contrast, only the GDP response has increased significantly for the nine months However, the response of GDP to a change in CBB is more robust than that of the CPI Furthermore, risk aversion has an influence on GDP and CPI in Vietnam A surge in the VIX index signals increased risk aversion, leading to a quick drop in GDP following the shock, reaching its peak after ten months The results indicated that the impact of the shock caused by the Fed's balance sheet expansion on the Vietnamese real economy in the GFC was generally two times higher than during the

ABSTRACT

COVID-19 crisis The research results have been robustness tested with a different model for measuring AAR and CAAR and replacing CBB with Wu and Xia’s shadow short rate variable

With the results obtained, the study proposes policies such as (i) researching the implementation of UMP policy suitable for Vietnam, (ii) enhancing the development of the financial market to attract foreign capital flows, (iii) monitoring the monetary policies of developed countries, especially the US, to adjust domestic monetary policy proactively, (iv) Focus on managing the potential risks of foreign capital flows and market volatility (v) building resilience and promoting economic self-sufficiency in the face of external shocks Finally, the study also proposes recommendations for investors about investment opportunities in the Vietnamese stock market before the announcements related to the US’s monetary policy

Keywords: Unconventional monetary policy, Event study method, SVAR,

Financial market, Real economy

TÓM TẮT

Trong giai đoạn khủng hoảng tài chính toàn cầu 2007 – 2008 và đại dịch COVID-19, chính sách tiền tệ truyền (CSTT) thống không thể phát huy hiệu quả khi lãi suất điều hành của các Ngân hàng Trung ương (NHTW) về cận không Trong bối cảnh đó, các NHTW của các quốc gia phát triển đã sử dụng đến CSTT phi truyền thống với các công cụ như nới lỏng định lượng, định hướng chính sách, lãi suất âm v.v Nghiên cứu này nhằm mục tiêu xem xét ảnh hưởng của CSTT phi truyền thống của Mỹ tác động đến thị trường tài chính và nền kinh tế thực của Việt Nam trong giai đoạn từ 2007 đến 2022 Với vị thế là một quốc gia nhỏ, mở cửa nằm trong nhóm thị trường cận biên và ngày càng gia tăng sự hội nhập với thế giới, Việt Nam phần nào chịu ảnh hưởng trước các chính sách của các quốc gia trên thế giới, đặc biệt là Hoa Kỳ

Phương pháp nghiên cứu sự kiện được sử dụng để xem xét những phản ứng tức thì của thị trường chứng khoán trước những thông báo chính thức của Cục dự trữ liên bang Mỹ (Fed) về CSTT phi truyền thống (UMP) Ngoài ra, với mô hình véc tơ tự hồi quy cấu trúc (SVAR), nghiên cứu xem xét ảnh hưởng của CSTT phi truyền thống của Mỹ, với đại diện là chỉ tiêu bảng cân đối kế toán của Fed (CBB), tới nền kinh tế thực Việt Nam, được đo lường bởi 2 biến là tăng trưởng tổng sản phẩm quốc nội (GDP) và chỉ số giá tiêu dùng (CPI) Kết quả nghiên cứu cho thấy thị trường chứng khoán Việt Nam có phản ứng tích cực trước các thông tin về CSTT phi truyền thống của Mỹ, thể hiện qua hai chỉ tiêu lợi nhuận bất thường trung bình (AAR) và lợi nhuận trung bình tích lũy (CAAR) dương với các khung cửa sổ thời gian khác nhau trong các giai đoạn khủng hoảng Tuy nhiên, kết quả cũng cho thấy trong giai đoạn khủng hoảng tài chính toàn cầu, thị trường chứng khoán phản ứng ngay khi thông tin công bố, trong giai đoạn đại dịch COVID-19, thị trường có phản ứng sớm hơn Ngoài ra, phản ứng của thị trường trong giai đoạn COVID-19 lớn hơn so với giai đoạn khủng hoảng tài chính toàn cầu Sự khác biệt này do bối cảnh, quy mô và thời gian thực hiện CSTT phi truyền thống của Mỹ trong hai giai đoạn Kết quả của các ngành riêng lẻ cũng có sự phản ứng tích cực trước các thông tin của CSTT phi truyền thống của Mỹ Kết quả của mô hình SVAR cũng cho thấy CSTT mở rộng thông qua công cụ phi truyền thống dẫn đến GDP và CPI ở Việt Nam đã tăng đáng kể, tuy nhiên chỉ có phản ứng của GDP đã tăng đáng kể trong 9 tháng là có ý nghĩa thống kê và phản ứng của GDP đối với sự thay đổi trong CBB mạnh hơn so với CPI Hơn nữa, chỉ số đo lường rủi ro VIX có ảnh hưởng đến GDP và

CPI ở Việt Nam Một sự tăng lên trong chỉ số VIX cho thấy sự tăng lên của rủi ro, dẫn đến việc giảm nhanh chóng của GDP sau cú sốc, đạt mức cao nhất sau mười tháng Kết quả cho thấy tác động của cú sốc do sự mở rộng của bảng cân đối kế toán của Fed lên nền kinh tế thực của Việt Nam trong giai đoạn khủng hoảng tài chính toàn cầu là gấp đôi so với trong cuộc khủng hoảng COVID-19 Kết quả nghiên cứu được kiểm tra tính vững với cách đo lường lợi nhuận bất thường và lợi nhuận bất thường tích lũy bằng cách sử dụng một mô hình khác và thay thế CBB với biến lãi suất ngắn hạn tính lại theo (Wu và Xia, 2016)

Với kết quả tìm được, nghiên cứu đưa ra đề xuất một số hàm ý chính sách như: (i) nghiên cứu thực thi CSTT phi truyền thống phù hợp với bối cảnh Việt Nam, (ii) tăng cường phát triển thị trường tài chính để thu hút dòng vốn nước ngoài, (iii) theo dõi chính CSTT của các nước phát triển, đặc biệt là Mỹ để điều chỉnh CSTT trong nước một cách chủ động, (iv) Tập trung vào việc quản lý các rủi ro tiềm ẩn từ dòng vốn nước ngoài và sự biến động của thị trường (v) xây dựng khả năng phòng vệ và khả năng tự chủ của nền kinh tế trước các cú sốc từ bên ngoài Cuối cùng, nghiên cứu cũng đề xuất những khuyến nghị cho nhà đầu tư về cơ hội đầu tư trên thị trường chứng khoán Việt Nam trước những thông tin công bố liên quan đến CSTT của Hoa Kỳ

Từ khóa: Chính sách tiền tệ phi truyền thống, nghiên cứu sự kiện, Véc tơ tự hồi

quy cấu trúc, thị trường tài chính, nền kinh tế thực

1.1 MOTIVATION OF RESEARCH

Mishkin (2022) stated that central banks worldwide predominantly employ a very short-term interest rate as their primary policy tool In the United States, the Federal Reserve (Fed) conducts monetary policy by adjusting the Federal funds rate According to Federal Reserve (2021), Fed implements monetary policy by employing a number of measures to control financial circumstances that promote progress toward its dual mission goals1 Monetary policy has a direct impact on short-term interest rates, which in turn affects other financial conditions such as stock prices, the dollar's exchange value, and asset prices Through these channels, monetary policy affects the actions of people and companies, impacting total spending, investment, production, employment, and inflation in the United States Under normal economic circumstances, monetary policy changes short-term interest rates and various actions that central banks take to influence the economy and financial markets However, the effectiveness of conventional monetary policy (CMP) instruments has not yielded the desired outcomes about financial stability, deficit reduction, and debt reduction, particularly considering recent financial and debt crises and the more recent pandemic and its devastating effects on the global economy

In 2008, during the global financial crisis (GFC), and again in 2020, the Federal funds rate reached zero due to economic collapse caused by epidemics, requiring additional stimulus measures How can the Fed and other central banks support the economy when short-term interest rates still are near zero? To address the limitations imposed by the zero lower bound on short-term interest rates, the United States (US) and other advanced economies (AEs) have also introduced new measures known as non-standard monetary policy or unconventional monetary policy (UMP) According to Bernanke (2022), the central bank lowered its short-term interest rate target to zero and committed to keeping it at that level for as long as necessary When short-term interest rates approach the

zero-bound (as shown in Appendix 5), economists refer to this as the "zero lower zero-bound,"

signifying that the central bank's CMP tool has reached its limit and cannot be further employed to provide stimulus Consequently, not only is it difficult for central banks to reduce interest rates further, but it also becomes challenging to achieve their inflation goals

1 Federal Reserve’s actions, as a central bank, to achieve the “dual mandate” goals specified by Congress: maximum employment and stable prices in the United States

1 CHAPTER 1: INTRODUCTION

This global crisis has led to significant disruptions in the financial markets and a severe economic downturn in advanced economies and other countries worldwide

In response to this situation, UMP appeared and played a pivotal role in managing central banks' monetary policies, particularly during prolonged economic crises UMP seeks to impact macroeconomic variables by adjusting medium and long-term interest rates by altering the central bank's balance sheet, providing forward guidance, and implementing negative interest rates One of the most significant tools within UMP is Quantitative Easing (QE) In 2008, the Fed introduced a new tool: Large-Scale Purchases of longer-term securities, specifically government-guaranteed mortgage-backed securities (MBS) In various forms, this tool would play a central role in the monetary strategies of many central banks in the subsequent years (Bernanke, 2022) Implementing Large-Scale Asset Purchase (LSAP) operations has significantly expanded the Fed's balance sheet and affected long-term bond yields During the 2007–2009 financial crisis and the recent pandemic, the Fed and numerous other central banks relied extensively on these tools (Bernanke, 2022) Another essential tool is forward guidance, designed to influence financial conditions by shaping market expectations of future monetary policy

The widespread adoption of numerous UMPs during the GFC brought about significant transformations in both financial markets and the real economy, affecting both advanced economies and the rest of the world, particularly emerging economy markets (EMEs) and developing countries The deployment of UMP tools in AEs reduced bond yields and increased real GDP, stock prices, and the Consumer Price Index (CPI) Additionally, it spurred portfolio flows into other countries, resulting in heightened real output growth and positive responses from the financial markets

The instability in global finance has persisted since the GFC The outbreak of the COVID-19 pandemic in late 2019 delivered a severe shock to economies worldwide Most nations resorted to lockdowns and isolation measures to have the pandemic's spread, resulting in economic stagnation Consequently, global GDP experienced a significant decline in 2019, approximately 3%, and is expected to continue falling sharply in the subsequent years In contrast, during the 2009 financial crisis, the global GDP loss was only 0.1% (Gopinath, 2020) Economies faced a pronounced and enduring increase in unemployment and public debt, and many businesses closed or went bankrupt To mitigate the adverse economic impacts of COVID-19, central banks swiftly implemented a range of

robust policies These measures included interest rate cuts, liquidity support for commercial banks, and various forms of support for private sectors In this context, UMP once again played a pivotal role in the policy management of central banks when the pandemic hurt stock markets by reducing stock returns, and CMP did not reverse the adverse impact of the pandemic (Iyke & Maheepala, 2022)

In the United States, as a response to the COVID-19 pandemic, Fed took measures to support the economy in the face of new challenges In March 2020, there were two special sessions of the Federal Open Market Committee (FOMC) intending to bolster economic activity On March 3, 2020, Fed lowered the Federal funds rate, initially from a range of 1.5% to 1.75% to a range of 1% to 1.25% Later, on March 16, the range was further reduced to 0%-0.25% (Tepper & Adams, 2024) In August 2020, the Fed announced significant changes to its monetary policy-making framework process initiated before the pandemic These changes were designed to enhance the potency of monetary policy in an environment where interest rates were already low In subsequent months, the Fed provided further clarity by explicitly stating its commitment to keeping interest rates low for as long as necessary Concurrently, concerns about the virus triggered the worst week in US financial markets since the 2007–2009 financial crisis, serving as a warning signal for the economy (Bernanke, 2022) This is only the second time this interest rate has reached the zero lower bound In this context, it is essential to examine how this UMP affects both the real economy and financial markets in AEs and other countries This analysis can provide valuable insights and implications for dealing with similar situations in the future This analysis is crucial considering the global health crisis caused by COVID-19, which has posed unprecedented challenges to economies worldwide

The United States' new monetary policy operations always serve as necessary signals for central banks in developing countries to adjust their economic policy implementations Gai and Tong (2022) examine the international impact of the information on US’s monetary policy When the Fed tightens monetary policy, it reveals a tightened monetary stance and optimism about the economy, raising global output and asset prices Monetary announcements from the US can signal optimism or pessimism, with far-reaching consequences for global economic activity Therefore, the various approaches to this policy have raised significant concerns about their potential international spillover

effects on developing countries' real economies and financial markets Identifying which countries are most affected by these US policy decisions is particularly interesting

The United States, one of the countries heavily affected by the pandemic crisis in 2019, has aggressively implemented fiscal and monetary policies to address the epidemic and boost its economy These measures include providing social security support packages, engaging in large-scale government asset purchases, conducting widespread overnight and term repo transactions, and reducing discount lending interest rates The capital inflows from implementing UMP tools in advanced economies can exert pressure on various aspects, including real output, asset prices, foreign exchange rates, and overall financial conditions These inflows also contribute to increased volatility in financial markets and real economic activities The effects of AEs' UMP measures can be transmitted through various channels, such as the portfolio rebalancing channel, the interest rate channel, the exchange rate channel, the asset price channel, and the credit channel Developing countries are particularly vulnerable to economic uncertainty, especially in the face of unexpected changes in monetary policy in AEs

A significant number of empirical studies have analyzed the domestic impact of UMP in advanced economies and its international spillover effects on the rest of the world Many of these studies have primarily focused on examining the response of financial markets within AEs such as (Breedon et al., 2012; Eksi & Tas, 2017; Guerello, 2018; Haitsma et al., 2016; Putniņš, 2022; Rahman & Serletis, 2023; Saiki & Frost, 2014; Weale & Wieladek, 2022), interest rate (Bauer & Neely, 2014; Baumeister & Benati, 2010; Breedon et al., 2012; Jäger & Grigoriadis, 2017)… Another focus on the impact of UMP on the macro economy and economic activity in AEs (Fratzscher et al., 2016; Gambacorta et al., 2014; Jawadi et al., 2017; Meinusch & Tillmann, 2016) These findings make valuable contributions to the empirical evidence However, they have yet to address this issue in the context of a pandemic crisis, nor have they compared the differences between implementing UMP tools to manage a GFC crisis versus a pandemic crisis in various advanced economies, particularly those nations with significant influence on the development of other economies, such as the United States

Moreover, another strand of research concerns the international impact of this policy on EMEs and developing countries, but in limited quantities These studies pay more attention to the financial market in emerging economies, such as interest rates, asset prices,

and exchange rates… (Anaya et al., 2017; Apostolou & Beirne, 2019; Bowman et al., 2015; Chen et al., 2014; Chen et al., 2016; Eser & Schwaab, 2016; Gupta & Marfatia, 2018; Tillmann, 2016; Uz Akdogan, 2023; Yilmazkuday, 2022), they also concentrate on the real economy as well (Chen et al., 2017; Fic, 2013; Punzi & Chantapacdepong, 2019) or capital flow (Alper et al., 2020; Chen et al., 2014; Kiendrebeogo, 2016; Le et al., 2022)

While these studies have consistently yielded results such as increased portfolio inflows, heightened output growth, asset price surges, and exchange rate appreciation, their focus has been mainly on EMEs when examining the international spillover effects of advanced economies’ UMP However, it is essential to recognize that, beyond EMEs, other regions warrant investigation as well Some studies on related topics have underscored the critical role played by EMEs and frontier markets, particularly in the context of portfolio flows and the stock market Moreover, the dynamics of international monetary policy spillovers are intricately linked with portfolio rebalancing, asset price channels, and various other channels within the monetary transmission mechanism

Asian economies are also affected by the GFC and the UMP of advanced economies, especially the United States, in different ways (Punzi & Chantapacdepong, 2019) Some studies find that UMP in AEs has positive spillover effects on Asian and Pacific countries, such as capital inflows, stock market growth, currency appreciation, and production increase such as (Tran & Pham, 2020) Other studies find that these effects are minor or negligible, and that there are differences among Asian and Pacific countries

(Rafiq, 2015) According to Outlook Frontier Markets (2021), in 2020, the return on equity

of frontier markets is a 67% premium to developed markets Frontier markets, offering high returns and low correlations with other markets, are appealing to investors despite their higher risks and lower liquidity They have grown rapidly, becoming a popular investment class with lower debt and higher foreign-exchange reserves relative to their GDP With optimistic anticipation, many believe these markets, given their growth rates, will become economic success stories Research shows that investment efficiency in frontier markets surpasses some developing markets Sukumaran, Gupta, and Jithendranathan (2015) highlight substantial benefits for Australian investors diversifying into these markets, with US investors reaping even greater rewards Furthermore, market shocks from developed countries impact frontier markets, particularly during crises (Samarakoon, 2011) Given these considerations, frontier markets present a compelling option for international

investors, complementing investments in emerging market economies The importance of frontier markets is underscored, particularly considering monetary policy adjustments during the COVID-19 pandemic, which may necessitate a reevaluation of investment strategies This could involve a potential pivot towards investments in safe-haven assets and economies, or a focus on regions that yield higher returns

This study will revisit the spillover effects of UMP, focusing on the United States and frontier market economies in Asia, particularly Vietnam As per the KOF Globalization Index, Vietnam is recognized as a country with substantial trade and financial integration The study’s focus is on the Asian region due to its vibrant economic growth and its status as a significant economic center These economies are similar in their susceptibility to monetary policy uncertainties in advanced economies, a result of historical regional financial crises and their ongoing transition towards financial liberalization and economic globalization The study excludes developed Asian countries like Japan and newly industrialized countries like Taiwan, Korea, and Singapore The remaining Asian countries share similar levels of development and characteristics such as geography, economy, and demographics

Figure 1.1: Vietnam KOF Globalization Index

Source: KOF Swiss Economic Institute

Several studies have examined the impact of UMP on developing countries, such as (Danh, 2016), This study discusses the use of UMP in developed countries and provides recommendations for Vietnam, emphasizing the need for a cautious approach and tight

management of external capital flows However, this study does not provide a deep analysis and quantification of the specific impact on Vietnam's financial market and real economy (Tài, 2018) also discusses the use of UMP in some countries and based on a general overview of the application of UMP in Vietnam in recent years, proposes a number of policy recommendations for Vietnam (Lân et al., 2016) examines the theoretical basis, international experience in the implementation of UMP, and the actual implementation of monetary policy by the State Bank of Vietnam From this, the study draws lessons and recommendations for the use of UMP in the context of Vietnam Ngô and Nguyễn (2020) study the use of UMP in Vietnam and other countries during the crisis and they showed that the GFC has changed perspectives on monetary policy Due to the turmoil starting in August 2007, financial instability disrupted the money market, and uncertainty about the solvency of the financial market led to increasing counterparty risk Furthermore, with the collapse of Lehman Brothers in September 2008, the financial crisis developed into a global crisis, the use of UMP also posed significant challenges to economies, especially after experiencing prolonged economic crisis and recession These difficult problems resurfaced once again during the COVID-19 pandemic period Nguyễn and Ngô (2021) show that the Federal Reserve’s balance sheet shock affects Vietnam through two main channels: portfolio rebalancing channel and asset price channel A shock in the US’s UMP, manifested through the expansion of the central bank's balance sheet, will significantly increase capital flows into Vietnam Furthermore, when considering the asset price channel, when a shock related to UMP easing occurs through the US central bank's QE actions, stock prices in Vietnam initially tend to decrease immediately after the shock until the second half of the second quarter, after which stock prices rebound and have statistical significance until the third quarter after the shock occurs However, these studies only evaluate the use of UMP in the COVID-19 pandemic and the transmission channels to Vietnam, without analyzing the specific impact on the financial market and the real economy of Vietnam The research’s data during the COVID-19 period only goes up to Q3/2020, which is not long enough to assess the impact of US’s UMP on high lag level variables such as GDP and CPI A recent study by (Anh et al., 2023) examines the spillover effects of US monetary policy on Vietnam The study finds that changes in US monetary policy have spillover effects and cause volatility in the Vietnamese financial market, including the money market, stock market, and foreign exchange market However, this

study only presents some of the tools of US monetary policy, such as: interest rates, reserve requirements, and open market operations In addition, the study only analyzes the current state of the foreign exchange market, stock market, and money market The study does not identify the specific impact of US monetary policy, especially UMP, on the Vietnamese financial market

In summary, research on the spillover effects of unconventional monetary policy from developed countries to Vietnam and the implementation of this policy in Vietnam is still limited The studies focus on introducing the use of this policy in developed countries such as the US, UK, ECB, and Japan From there, they draw lessons for Vietnam (Danh, 2016; Lân et al., 2016; Ngô & Nguyễn, 2020; Tài, 2018) Some studies have conducted a deeper analysis of the data when implementing unconventional monetary policy and the Vietnamese financial market (Anh et al., 2023), and have also identified the transmission channels of unconventional US monetary policy (Nguyễn & Ngô, 2021) However, (i) very few studies have examined the specific impact on the Vietnamese financial market and the real economy by quantifying the level of impact; (ii) the studies do not show the impact of different specific tools of US unconventional monetary policy; (iii) a few studies have compared the difference in the impact of UMP in the two periods GFC and COVID-19

During the GFC, the Vietnamese stock market experienced a sharp decline, from over 1,100 points at the beginning of 2008 to a continuous decrease, reaching a low of 235.5 points on February 24, 2009 This was also repeated during the COVID-19 pandemic when the VNINDEX, starting at 991.46 points on January 22, 2020, dropped to 659.21 points on March 24, 2020 (a decrease of 33.51%)2 Not only was the financial market affected, but during the global financial crisis, Vietnam's economy was not immune to adverse impacts, experiencing a decline in GDP growth from 7.1% in 2007 to only 5.7% in 2008 Once again, with the outbreak of the COVID-19 pandemic, Vietnam's GDP growth in 2020 decreased to only 2.9% and further to 2.6% in 20213

The foregoing proves that the GFC and the COVID-19 pandemic have had adverse effects on financial markets and economies worldwide Vietnam, as a developing country and a member of the frontier financial markets group, has not been immune to the impacts of these crises Developed economies have implemented various economic support

2 Data from HOSE

3 Data from the International Monetary Fund (IMF – IFS)

policies, including the US’s UMP to mitigate the negative consequences of these crises The spillover effects of these policies have also had positive impacts on Vietnam's financial market and real economy, given Vietnam's deep integration into the international market

From an academic and empirical perspective, this research in Vietnam was driven by the necessity to thoroughly examine how the United States unconventional monetary policy impacts developing and frontier markets, such as Vietnam4 With a deep analysis of the impact of US’s UMP on the Vietnamese financial market and the real economy in two periods: the GFC and the Covid-19 pandemic

1.2 RESEARCH OBJECTIVES

The purpose of this study is to analyzes how the United States' unconventional monetary policy spills over to affect Vietnam's financial market (specifically the stock market) and real economy (the production, inflation)

Specific objectives

First, this study investigates the impact of US’s UMP announcements during the

GFC and COVID-19 pandemic on Vietnam's financial market, exploring how these policies, employed to stimulate the US economy, influence Vietnam through international spillover effects

Second, this research analyzes how Vietnam's real economy (specifically GDP

growth and inflation) responds to US’s UMP shocks during the global financial crisis and COVID-19 pandemic Similar to the financial market, UMPs instituted to support the US economy can create spillover effects on Vietnam's economy through various transmission channels

Third, this research delves into the exploration of potential disparities in the

international spillover effects of the US’s UMP on Vietnam’s financial market and real

economy during two distinct periods of crisis: the GFC and the COVID-19 pandemic

1.3 RESEARCH QUESTIONS

To achieve the research objectives above, this study goes to answer three research questions corresponding to the specific objectives as follows:

4 According to market classification in the FTSE, MSCI, S&P and Russell indexes, Vietnam is classified as a frontier financial market

Research Question 1: To what extent did the announcements of the US's Unconventional

Monetary Policy during the global financial crisis and the COVID-19 pandemic influence the Vietnamese financial market?

Research Question 2: To what degree did US’s Unconventional Monetary Policy shocks

contribute to cyclical fluctuations within the Vietnamese real economy during the global financial crisis and the COVID-19 pandemic?

Research Question 3: Do differences exist in the effects of the US’s UMP on both the

Vietnamese financial market and real economy during the global financial crisis versus the pandemic crisis? And What are the key differences between the two?

The study's scope is essential since it might affect the reliability of the study Hence, the next part discusses it

1.4 THE SCOPE OF THIS STUDY

This study will investigate how the US’s UMP affects the Vietnamese stock market’s immediate reaction to official UMP announcements and the real economy of Vietnam from 2007 to 2022 Emphasis will be placed on two significant periods: the GFC and the COVID-19 pandemic

First, the purpose of this study is to investigate the spillover effects of UMP on

Vietnam, a country that has the characteristics of a frontier financial market and an open, small economy These features make Vietnam a suitable case for analyzing how UMP actions in a major economy can influence the economic and financial conditions in a smaller and less developed economy This study concentrates on the UMP tools that the United States has employed since the GFC The study does not include the UMP tools of other advanced economies, such as the Euro area, Japan, and the United Kingdom, in the analysis

Second, the choice of the study period is essential to ensure the validity and reliability

of the statistical model This research will examine the spillover effects of the US’s UMP on Vietnam’s economy from 2007 to 2022 This period covers the whole span of the US implementation UMP, which started in response to the GFC and the COVID-19 pandemic crisis This period also allows for a comprehensive analysis of how the US’s UMP affects the economic and financial conditions in Vietnam, as well as the role of major events, such

as the GFC and the COVID-19 pandemic crisis, in the international transmission of the US’s UMP

Third, this study will examine the immediate response of the Vietnamese stock market

to the announcement of the US's UMP implementation, which serves as a proxy for all markets and different sectors5, following the announcement of the US’s UMP implementation The analysis will specifically focus on listed stocks on the HOSE, rather than encompassing the entirety of Vietnam's financial markets This emphasis is driven by several considerations:

(i) For the Vietnamese stock market, companies can be listed and if they meet the requirements according to the regulations The stocks of these companies can be listed on two exchanges, HOSE or HNX Due to its formation and development process, as well as its scale, HOSE primarily lists large enterprises from various fields The market capitalization of HOSE as of April 2022 is 13.12 times higher than HNX6, so the Vnindex (indicator of HOSE) can be represented the Vietnamese stock market, all companies listed on HOSE can also represent the listed companies on the Vietnamese stock market In addition, with the event study method, when determining abnormal returns (AR) based on the market and risk-adjusted model or the market-adjusted model, if combining all stocks in both stock exchanges, it will not be appropriate when calculating AR because the fluctuation margin on these two stock exchanges is different Specifically, the fluctuation margin of HOSE is +/- 7% while the fluctuation margin of HNX is +/- 10%

(ii) The study employs an event study method and relies on daily data Unfortunately, daily trading data is limited in the Vietnamese bond market

(iii) In the case of the foreign exchange market, the exchange rate is managed by the central bank, making it challenging to observe immediate fluctuations in response to the US’s UMP events

Finally, this study will examine the response of Vietnam's real economy, a proxy for

price index and output, to the US’s UMP shocks The real economy is concerned with creating, purchasing, and moving commodities and services within an economy It contrasts with the financial economy, which focuses only on exchanging money and other financial

5 The study will analyze the stock price reactions of all industries listed on HOSE, classified according to the GICS industry classification standard The detailed industry classification is presented in Appendix 1

6 According to data published by the State Securities Commission of Vietnam

assets that reflect ownership of or claims to ownership of goods and services from the real economy Since the term "real economy" applies to all real or non-financial components, real variables can be used to model the real economy

Appropriate methodologies, which will be explained in the following section, must discover the correct answers to the research questions

1.5 RESEARCH METHODOLOGIES AND DATA

1.5.1 Research methodology

1.5.1.1 Event study method

The event study method (ESM) is a statistical and econometric technique that analyzes the effects of specific events or shocks on financial markets or economic variables Widely used in finance, economics, and related disciplines, this method assesses how particular events impact asset prices, stock returns, and other key financial indicators According to Neely (2015), one must examine asset price changes as announcements or other news change market expectations to evaluate the effects of the UMP As a result, the technique may be applied to examine occurrences instantly ESM is current in addition to having quick access to a wealth of data since asset values, including stock prices, are prospective For that reason, this research employs the ESM to analyze the effects of the US’s UMP announcement on the Vietnam stock market based on the approach of (Galloppo & Paimanova, 2017; Kolari & Pynnonen, 2011; Lubys & Panda, 2021; MacKinlay, 1997; Pacicco et al., 2018, 2021) Results from ESM will answer the first research question In addition, by comparing the research results in two periods, it will also answer part of the third research question, the difference in the effect of the US’s UMP on the Vietnamese financial market in two crisis periods.

1.5.1.2 Structural vector autoregression model

The structural vector autoregression (SVAR) model to study the effects of the US’s UMP shocks on Vietnam's real economy based on the methodology of (Carrera & Ramírez-Rondán, 2020; Cushman & Zha, 1997; Li et al., 2010; Yildirim & Ivrendi, 2021) The monthly dataset spanning 16 years, from 2007 to 2022, will encompass various implementations of the US’s UMP since the GFC and the onset of the pandemic crisis SVAR has long been regarded as a cornerstone in empirical macroeconomics, enabling the study of expected responses of model variables to one-time structural shocks, such as

policy actions or unexpected economic changes (Kilian, 2013) The essence of SVAR is to obtain structural parameters and shocks based on observing the reduced form VAR

developed by (Sims, 1980) SVAR allows for as many types of shocks as time series

variables in the set by assuming that observable variables are endogenous In contrast,

shocks are the impulses that move the system

Consequently, the SVAR model will be used in this research to investigate the international spillover effects of the US’s UMP on the Vietnamese economy from 2007 to 2022 Then, this study will use another variable representing the US’s UMP to replace the previous one to check its robustness These results will answer the second research question By comparing the research results in two periods, the study will answer the remaining of the third research question, the differences in the effects of the US’s UMP on the real economy of Vietnam in two crisis periods

The research methods used to address the research objectives are presented in

Figure 1.2

Figure 1.2: The research methods used to address the research objectives

Source: Proposed by the author

(Fed’s balance sheet)

Rest of the word (include VN)

Forex, Stock price, IRR

Vietnamese real economy

1.5.2 Research data

This study has three groups of data:

First, the daily stock index and stock prices in Vietnam from 2007 to 2022 are

collected, focusing on defining the event window, event date, and estimation window This data has been sourced from the HOSE

Second, the announcement days of the US’s UMP announcements in the GFC period

based on the research of the Fed and (Bowman et al., 2015), the event days in the COVID-19 pandemic period based on the Fed and (Clarida et al., 2021)

Third, the data proxies for the US’s UMP and international transmission channels

and Vietnamese macroeconomic data spanning the period from 2007 to 2022 The monthly data on the total assets of the Federal Reserve's balance sheets and the VIX index were sourced from the Federal Reserve Bank and the Chicago Board Options Exchange (CBOE), respectively Additionally, data on foreign portfolio investment flows to Vietnam were obtained from the IMF For Vietnam's monthly macroeconomic indicators, including market interest rates, the nominal exchange rate of USD/VND, Vietnam's output, and inflation, data from 2007 to 2022 were collected from the IMF

Finally, in the section assessing the overview of the Vietnamese financial market in

the period from 2000 to 2022, in addition to the daily stock index data introduced above, the study also uses data on the number of listed companies, market capitalization value, and trading volume from HOSE to analyze the overview of the Vietnamese financial market which represented by the stock market

1.6 RESEARCH CONTRIBUTIONS

The main contribution of a study that examines the effects of the US’s UMP on the Vietnamese financial market and the real economy In detail, the study has both academic and practical contributions as follows:

Academic contributions

Firstly, the study's novel approach lies in its consideration of the overall spillover

effects of the US's UMP on Vietnam, analyzing both the immediate financial market reaction and the subsequent, delayed effects on the real economy Thus, this research stands as one of the scholarly works that delve into the exploration of the influence exerted by the UMP of the United States on a frontier market, specifically Vietnam The study's findings

hold significant implications for the development of effective monetary policies and investment strategies within both Vietnamese frontier markets and other similar contexts

Secondly, one of the novel aspects of this research is that it takes into account two

significant crises, the Global Financial Crisis (GFC) and the COVID-19 pandemic It conducts a comparative analysis of their level of influence on the Vietnamese financial market and real economy This is a gap that previous studies seem not to have addressed, especially in a small, open like Vietnam Therefore, this research makes a significant contribution to the existing body of literature by providing a comparative analysis of the potential differences in the effects of the US’s UMP during two distinct periods of economic crisis due to the nature of these crises was fundamentally different - the GFC was primarily a financial crisis, while the COVID-19 pandemic was a health crisis that led to an economic downturn

Thirdly, unlike previous studies, this research employs a multifaceted approach to

examine the effects of the US’s UMP by utilizing a range of different proxies for UMP, including the total assets of the Federal Reserve's balance sheet and the Shadow Federal Funds Rate Through this comprehensive and rigorous approach, the study provides an in-depth understanding of the impact of the US’s UMP on Vietnam This contributes to the broader understanding of international monetary policy transmission and can inform policy decisions in both developed and frontier markets

Practical contributions

Firstly, this research offers valuable insights into the Vietnamese financial market's

reactions to US’s UMP announcements This knowledge indicates the relative efficiency of the Vietnamese market within the context of UMP transmissions Investors can benefit from this understanding in several ways as follows: Investors can anticipate market movements and make more informed decisions about when to buy or sell stocks based on US’s monetary policy updates Besides, based on the research results, investors can identify specific sectors within the Vietnamese stock market that are more resilient or potentially even benefit during economic downturns influenced by external factors like US’s policy changes

Secondly, the study also demonstrates that the Vietnamese economy benefits when the

US implements an expansionary monetary policy This is due to the increased inflow of capital, which in turn leads to higher asset prices and stimulates economic growth for the

country As a result, Vietnam should fully utilize these capital inflows to drive its national development

1.7 THE STRUCTURE OF THE STUDY

The study is structured into five chapters as follows:

Chapter 1: Introduction

This chapter provides an overview of the research background and motivation, research objectives and questions, research scope, and the structure of the study

Chapter 2: Theoretical framework and literature review

This chapter presents an overview of the theoretical framework of unconventional monetary policy, including its instruments and international transmission channels It also reviews relevant literature on the topic

Chapter 3: Methodology and Data

In this chapter, the study introduces the research methods used to investigate the impact of the US’s UMP on the Vietnamese financial market and the real economy The research data and data sources are also presented in this chapter

Chapter 4: Research Results

This chapter presents the results obtained from the ESM and SVAR It analyzes the research findings to elucidate the impact of the US’s UMP on the Vietnamese financial market and the real economy

Chapter 5: Conclusions and policy implications

The last chapter offers conclusions, research contributions, and policy implications based on the research findings It also outlines the study's limitations and suggests directions for future research

SUMMARY

This chapter introduces the research topic, which examines the impact of the US’s UMP on the Vietnamese financial market and the real economy The chapter begins by providing an overview of how central banks use short-term interest rates as their primary policy tool and how CMP instruments have limitations in stimulating the economy during crises The chapter emphasizes the importance of understanding the spillover effects of UMP on developing and frontier markets, such as Vietnam

The research objectives are to analyze the effect of the US’s UMP on Vietnam and to identify potential differences in response during the GFC and the COVID-19 pandemic The scope of the study is outlined, focusing on the period from 2007 to 2022, which covers the US implementation of UMP during the GFC and the COVID-19 pandemic

The chapter concludes by describing the structure of the entire thesis, which includes theoretical frameworks, literature review, research results, and policy implications

2.1 CONCEPTUAL FRAMEWORK

2.1.1 Conventional monetary policy

2.1.1.1 Definition

Monetary policy is a fundamental tool utilized by governments and central banks to manage the flow of money within an economy This policy framework encompasses the actions and decisions designed to regulate the overall money supply, its accessibility, and prevailing interest rates The Cambridge Dictionary accurately defines monetary policy as "monetary actions taken by a government to control the amount of money in an economy and its availability, for example, by changing the interest rate.”

Meanwhile, Federal Reserve (2021) defines monetary policy refers to the actions of

central banks to achieve macroeconomic policy objectives such as price stability, full employment, and stable economic growth Its main policy tools are the target for the federal funds rate (the rate that banks charge each other for term loans), a key short-term interest rate Bank of England (2020) provides another definition, that monetary policy is an action that a country’s central bank or government can take to influence how much money is in the economy and how much it costs to borrow European Central Bank (2021) also defines ‘monetary policy’ as the decisions taken by central banks to influence

the cost and availability of money in an economy

From the above concepts, we can understand that conventional monetary policy is a macroeconomic management policy in which the central bank uses tools that affect operational objectives, modifying the money supply and interest rates influencing monetary policy's ultimate purpose: price stability, economic growth, and employment The monetary policy objective is to deliver price stability and consequently support the macroeconomic objectives, including growth and employment (Mishkin, 2022)

2.1.1.2 Conventional monetary policy tools

Mishkin (2022) indicated that (i) open market operations, (ii) discount lending, and (iii) reserve requirements are the three monetary policy instruments used by the Federal Reserve to control the money supply and interest rates Together, these three instruments - open market operations, discount lending, and reserve requirements - form the backbone of

2 CHAPTER 2: THEORETICAL FRAMEWORK AND LITERATURE REVIEW

what is commonly referred to as classic or conventional monetary policy tools They are the primary means by which the Federal Reserve manages the money supply and interest rates, thereby influencing economic activity

a Open market operations

An open market operation is a monetary policy instrument that central banks use to manage and control the amount of money in circulation This is achieved through the purchase or sale of government securities, such as treasury bonds

When the central bank buys these securities in what is known as a buying operation, it effectively injects money into the economy This is because the money used to purchase the securities goes into the banking system, thereby increasing the number of reserves and base money available As a result, the overall money supply in the economy increases Furthermore, this increase in the money supply tends to lower short-term interest rates, making borrowing cheaper and encouraging spending and investment

Conversely, when the central bank sells these securities in a selling operation, it essentially takes money out of the economy The money received from the sale of the securities is removed from the banking system, leading to a decrease in reserves and base money This reduction in the money supply has the effect of increasing short-term interest rates, making borrowing more expensive and discouraging excessive spending and investment

According to Mishkin (2022), open market operations, the principal drivers of the primary causes of fluctuations in the money supply, are fluctuations in interest rates and the monetary base, which were the most significant conventional monetary policy tools before the global financial crisis There are two types of open market operations: defensive open market operations and dynamic open market operations Defensive open market operations seek to offset changes in other variables that affect reserves and the monetary base The goal of dynamic, open market operations is to change the number of reserves and the monetary base

In summary, open market operations are a crucial tool for central banks to regulate the money supply and control interest rates, thereby maintaining economic stability and promoting sustainable economic growth

b Discount lending

The discount window is the location where the central banks can provide reserves to banks—examining how the discount window functions can help you better grasp how the central bank influences the amounts of borrowed reserves The term “discount window” refers to the mechanism through which central banks can supply reserves to commercial banks Understanding how the discount window operates can provide valuable insights into the ways in which a central bank can influence the volume of borrowed reserves within the banking system

Primary credit is the most significant form of discount lending in the context of monetary policy It is a standing lending facility that allows financially stable banks to borrow from the central bank’s primary credit facility These loans are typically of extremely short duration, often just overnight This facility is designed to provide banks with a reliable source of liquidity, enabling them to meet their short-term funding needs and maintain their day-to-day operations (Mishkin, 2022)

Secondary credit is given to banks in financial trouble with major liquidity problems Seasonal credit is offered to meet the needs of several local banks in vacation and agricultural areas with seasonal deposits The seasonal credit interest rate is determined

by averaging the federal funds rate and certificate of deposit rates (Mishkin, 2022) c Reserve requirements

Banks maintain accounts at the central bank, where they hold their deposits These deposits, also known as reserves, play a crucial role in the banking system and are subject to regulations set by the central bank

The total reserves held by a bank are divided into two distinct categories The first category is the required reserves, which are the minimum number of reserves that a bank is mandated to hold by the Federal Reserve, the central bank of the United States This requirement is intended to ensure that banks have enough liquidity to meet their short-term obligations and to provide a buffer against potential financial shocks The second category is excess reserves, which are reserves that banks choose to hold over and above the required minimum Banks may choose to hold excess reserves for a variety of reasons, such as to provide additional liquidity, to earn interest, or to meet unexpected cash outflows (Mishkin, 2022)

According to Mishkin (2022), changes in the reserve requirement ratios affect the money supply by changing the multiplier of the money supply A rise in reserve

requirements restricts the number of deposits held by a given monetary base level, leading the money supply to contract Increases in reserve requirements boost reserve demand and raise the federal funds rate On the other hand, a reduction in reserve requirements causes the money supply to expand and the federal funds rate to fall Changes in reserve requirements are currently very seldom utilized as a monetary policy instrument since it is expensive for banks to alter their reserve holdings when reserve requirements change

2.1.1.3 Transmission mechanism of conventional monetary policy

Mishkin (2022) proposed four main transmission channels through which monetary policy affects the economy: the interest rate channel, the currency channel (or exchange rate channel), the asset price channel, and the credit channel The details of the transmission

mechanism of CMP are presented in Figure 2.1 below

Figure 2.1: Monetary policy transmission mechanism

Source: Mishkin (2022)

a Interest rate channel

Modifying monetary policy leads to a change in the real interest rate, resulting in a shift in investment spending, thereby causing output According to Mishkin (2022), the classic interpretation of the monetary transmission mechanism is shown by the following diagram, which depicts the effect of monetary policy easing achieved by reducing the rate of real interest:

r↑ ⇒ I↓ ⇒ Yad↓

Tightening monetary policy increases short-term nominal interest rates As a result, long-term real interest rates will also rise A rise in real interest rates leads to declining

investment spending (I), finally reducing total output (Yad)

r↓ ⇒ I↑ ⇒ Yad↑

On the other hand, monetary policy easing results in a decrease in real interest rates, which reduces the real cost of borrowing, resulting in a rise in investment expenditure (I)

and, as a result, an increase in total output (Yad)

b Exchange rate channel

According to Mishkin (2022), the exchange rate channel also involves interest-rate effects because changes in interest rates caused by policy can also have an impact on the currency rate Because the exchange rate represents the relative price of local and foreign money, it is affected by domestic and international monetary conditions The precise impact of an official rate change on exchange rates is unpredictable since it will depend on assumptions about domestic and international interest rates and inflation, both of which may be impacted by a policy shift Other factors being equal, an unexpected rise in the official rate will always result in an instant appreciation of the domestic currency in foreign exchange markets, and vice versa for a corresponding rate decline Higher domestic interest rates relative to interest rates on similar foreign-currency assets make sterling assets more appealing to overseas investors, resulting in exchange rate appreciation The exchange rate should move to a level where investors predict a future depreciation significant enough to choose between owning sterling and foreign-currency assets

Changes in exchange rates cause changes in the relative pricing of local and foreign products and services, at least for a period, but some of these price changes may take months to make their way through the domestic economy and even longer to alter spending patterns

The diagram depicts the monetary transmission process that works through the exchange rate as follows:

r↓ ➔ E↓ ➔ NX↑ ➔ Yad ↑

Monetary policy easing results in a decrease in real interest rates, domestic assets become less attractive relative to assets denominated in foreign currencies, resulting in exchange rate depreciation (E) The lower value of the domestic currency makes domestic goods cheaper than foreign goods, thereby causing a rise in net exports (NX) and hence an

increase in total output (Yad)

When domestic real interest rates fall, domestic dollar assets become less attractive relative to assets denominated in foreign currencies As a result, the value of dollar assets relative to other currency assets falls, and the dollar depreciates

c Asset price channel

Changes in the official rate impact the market value of securities like bonds and stocks Bond prices are inversely connected to term interest rates Thus, rising long-term rates reduce bond prices, while falling long-long-term rates rise bond prices If everything else is equal (particularly inflation predictions), higher interest rates drop the values of other instruments, such as shares This is because predicted future returns are discounted by a larger amount, lowering the present value of any given future income stream Other factors, such as policy changes, may not be equal, indirectly influencing expectations or confidence, but these are addressed separately below

Tobin's q theory, developed by James Tobin, describes how monetary policy may affect the economy through its impacts on equity value (stock) Tobin defines q as: the market value of companies divided by the replacement cost of capital According to (Mishkin, 2022), If q is high, businesses' market prices are high in relation to capital replacement costs, and new plant and equipment capital is inexpensive in relation to firm market value Companies can then issue stock and earn a high price for it compared to the cost of the facilities and equipment they are buying Given that higher stock prices result in greater q and, as a result, more significant investment expenditure (I)

r↓ ➔ Ps↑ ➔ q↑ ➔ I↑ ➔ Yad ↑

Lower real interest rates on bonds (r) mean that the expected return on this alternative to stocks falls This makes stocks more attractive relative to bonds, and so