Monetary policy transmission and bank lending channel in vietnam

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Monetary policy transmission and bank lending channel in vietnam

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i MINISTRY OF EDUCATION AND TRAINING UNIVERSITY OF ECONOMICS HO CHI MINH CITY ***** NGUYEN PHUC CANH MONETARY POLICY TRANSMISSION AND BANK LENDING CHANNEL IN VIETNAM PHD THESIS HO CHI MINH CITY, 2016 ii MINISTRY OF EDUCATION AND TRAINING UNIVERSITY OF ECONOMICS HO CHI MINH CITY ***** NGUYEN PHUC CANH MONETARY POLICY TRANSMISSION AND BANK LENDING CHANNEL IN VIETNAM Major: Finance and Banking Code: 62.34.02.01 PHD THESIS ACADEMIC ADVISORS Prof Dr SU DINH THANH Assoc Prof Dr VO XUAN VINH HO CHI MINH CITY, 2016 i ACKNOWLEDGEMENTS I am deeply indebted to my academic advisers Pro.Dr Sử Đình Thành and Assoc.Pro.Dr Võ Xuân Vinh for their fundamental roles Pro.Thành and Pro.Vinh have provided me with guidance, assistances, and supports during my study They have given me autonomy on decision making and researching the topic, while continuing to provide valuable feedbacks, advices, and encouragement In addition to our academic collaboration, I greatly appreciate the bonding relationships between Thành, Vinh and I Additionally, I am deeply thankful to Dr Trầm Thị Xuân Hương, my lecturer and my researching partner at School of Banking, who has assisted me in researching the topic in this thesis She has also advised, encouraged and generously allowed me to apply our shared works in presenting this thesis I gratefully acknowledge lecturers from the research methodology course at University of Economics Ho Chi Minh City who have provided me with basis methodologies for this study Such methodologies have helped me understand, find and utilize correct methods I would like to thank my dear colleagues at School of Banking and University of Economics Ho Chi Minh City for their substantial influence The School of Banking and University of Economics Ho Chi Minh City provide the best environment for studying and researching I also give my thanks to colleagues in International department at School of Banking, they always supported and encouraged me in this study and helped me a lot throughout my career I also would like to thank the board of professors and the independent external reviewers who gave me a lot of useful comments and advices on my first presentation, their comments are one of the major contributing factors that allowed me to complete this version of my thesis I am deeply thankful to my family for their love, support, and sacrifice Without them, this thesis would never have been written Ho Chi Minh City, Sep/2016 Nguyen Phuc Canh ii ABBREVIATIONS Words Meanings ADB Asia Development Bank APC Asset Price Channel AR Autoregression ARDL Autoregressive Distributed Lag Model BLC Bank Lending Channel BSC Balance Sheet Channel BRICS BRICS Group (including Brazil, Russia, India, China and South Africa) CC Credit Channel CFC Cash Flow Channel CPI Consumer Price Index DSGE Dynamic Stochastic General Equilibrium Model EC Expectation Channel ECB European Central Bank ECM Error Correction Model EDF Expected Default Frequency ERC Exchange Rate Channel E.U European Union FAVAR Factor Augmented Vector Autoregression FDICIA Federal Deposit Insurance Corporation Improvement Act Fed Federal Reserve System FFR Fed Fund Rate GDP Gross Domestic Production GMM Generalized Method of Moments G7 Canada, France, Germany, Italy, Japan, UK, US iii HLE Household Liquidity Effects HNX Hanoi Stock Exchange HSX Ho Chi Minh Stock Exchange IRC Interest Rate Channel IS-LM Investment, Saving–Liquidity Preference, Money Supply IMF International Monetary Fund IPVN Vietnam Industrial Production IRF Impulse Response Function IT Inflation Targeting Policy LER Lending Interest Rate LIBOR London Interbank Offer Rate MPTM Monetary Policy Transmission Mechanism M2 Money Supply definition (expanded money supply) NEER Nominal Effective Exchange Rate NPV Net Present Value OECD Organization for Economic Co-operation and Development OLS Ordinary Least Squares KMV EDF KMV’s Expected Default Frequency QE Quantitative Easing program RDR Rediscounting Rate RFR Refinancing Rate SBV State Bank of Vietnam SME Small and Medium Enterprises S&P 500 S&P 500 Index SVAR Structured Vector Autoregression VAR Vector Autoregression VECM Vector Error Correction Models VIX The implied volatility of S&P 500 index options iv VND Vietnam Dong (Currency of Vietnam) VNI VNindex VNIBOR Vietnam Interbank Offer Rate VNindex Vietnam composite stock index U.K The United Kingdom UPLC Unexpected Price Level Channel U.S The United State USD US Dollar WACC Weighted Average Capital Cost WTO World Trade Organization v TABLE OF CONTENTS ACKNOWLEDGEMENTS i ABBREVIATIONS ii LIST OF TABLES x LIST OF FIGURES xiv CHAPTER INTRODUCTION 1.1 The overview of Vietnamese economy and monetary policy 1.1.1 The Vietnamese economy 1.1.2 The State Bank of Vietnam 1.1.3 The Vietnamese monetary policy 1.1.4.1 Market interest rates 1.1.4.2 Inflation 1.1.4.3 Exchange rate 1.1.4.4 Credit 1.1.4.5 Stock markets 1.2 Research gap identification 1.3 Research objectives and questions 10 1.4 The scope of this study 11 1.5 Research methodologies and data 12 1.5.1 Methodologies 12 1.5.2 Research data 13 1.6 Some key concepts 13 1.7 The structure of study 15 CHAPTER 17 vi THEORETIAL FRAMEWORK AND LITERATURE REVIEW 17 2.1 Monetary policy 17 2.1.1 Introduction 17 2.1.2 Central bank 18 2.1.3 Monetary policy targets 18 2.1.4 Monetary policy tools 19 2.1.5 The ineffectiveness of monetary policy 20 2.1.6 Monetary policy and fiscal policy 20 2.1.7 Unconventional monetary policies 21 2.1.7.1 Quantitative easing program 21 2.1.7.2 Inflation targeting policy 22 2.1.8 2.2 Summary 23 Monetary policy transmission 24 2.2.1 Introduction 24 2.2.2 Conceptual framework 24 2.2.3 Monetary policy transmission channels 26 2.2.3.1 Interest rate channel 26 2.2.3.2 Exchange rate channel 28 2.2.3.3 Asset price channel 30 2.2.3.4 Credit channel 31 2.2.3.5 Expectation channel 35 2.2.4 2.3 The lag and effectiveness of monetary policy transmission 36 2.2.4.1 The transmission lags of monetary policy 36 2.2.4.2 The effectiveness of monetary policy transmission 37 Bank lending channel 38 vii 2.3.1 Introduction 38 2.3.2 Transmission mechanism 38 2.3.3 Existing conditions 38 2.3.4 Empirical evidences 39 2.3.5 Determinants of bank lending channel 40 2.4 2.3.5.1 Macroeconomic conditions 41 2.3.5.2 The development of financial markets 43 2.3.5.3 Regulations in banking sector 44 2.3.5.4 The competition in banking sector 45 2.3.5.5 Microeconomic determinants 46 Studies of monetary policy transmission and bank lending channel in developing countries 52 2.5 Studies of monetary policy transmission and bank lending channel in Vietnam 57 2.6 Summary and research motivations 59 CHAPTER 61 METHODOLOGY 61 3.1 Monetary policy transmission testing models 61 3.1.1 Introduction 61 3.1.2 The relationships between monetary policy, output and inflation 61 3.1.3 Estimating effects of monetary policy 62 3.1.4 Database in study of monetary policy transmission 65 3.1.5 Proxy variables for monetary policy 65 3.1.5.1 Policy rates 65 3.1.5.2 Money supply 66 viii 3.1.6 Variables of commercial bank characteristics in bank lending channel 67 3.2 Econometric models for monetary policy transmission testing 68 3.2.1 Introduction 68 3.2.2 VAR and related models 68 3.2.2.1 VAR model 68 3.2.2.2 SVAR model 73 3.2.3 Cointegration models 76 3.2.3.1 ECM 76 3.2.3.2 VECM 76 3.2.3.3 ARDL 77 3.2.4 DSGE model 77 3.2.5 GMM model for panel data 78 3.3 Research methodologies for this study 81 3.3.1 Introduction 81 3.3.2 Research procedures and testing hypothesizes 81 3.3.3 Vietnam monetary policy transmission testing models 84 3.3.3.1 VAR model 84 3.3.3.2 SVAR model 85 3.3.4 Bank lending channel testing model 90 3.3.5 Research data 93 3.4 Summary 96 CHAPTER 97 EMPIRICAL EVIDENCES FROM VIETNAM 97 4.1 Monetary policy transmission 97 cxxxvii Dynamic panel-data estimation, one-step difference GMM Group variable: id Time variable : year Number of instruments = 137 F(11, 171) = 24.73 Prob > F = 0.000 Number of obs Number of groups Obs per group: avg max Std Err t P>|t| = = = = = 182 30 6.07 dloan Coef [95% Conf Interval] lloan L1 -.5859649 1203376 -4.87 0.000 -.8235033 -.3484265 lgdp 4125666 1164568 3.54 0.001 1826886 6424446 drd L1 -.0448139 -.0258612 0057235 006055 -7.83 -4.27 0.000 0.000 -.0561118 -.0378133 -.033516 -.013909 rddsize rddcap rddliq 0407102 1974152 -.0258581 0075313 0723089 0575602 5.41 2.73 -0.45 0.000 0.007 0.654 025844 0546822 -.1394782 0555764 3401483 087762 dsize L1 .185187 1148066 1.61 0.109 -.0414336 4118077 dcapr L1 .3852593 2996334 1.29 0.200 -.2061973 976716 dliqr L1 .3409187 2493683 1.37 0.173 -.1513178 8331552 dllpr L1 1.862431 3.486512 0.53 0.594 -5.019714 8.744577 Instruments for first differences equation Standard D.(rddcap L.lgdp L.drd) GMM-type (missing=0, separate instruments for each period unless collapsed) L(2/7).(L.lloan rddsize rddliq L.dsize L.dcapr L.dllpr L.dliqr) Arellano-Bond test for AR(1) in first differences: z = Arellano-Bond test for AR(2) in first differences: z = Sargan test of overid restrictions: chi2(126) = 135.72 -3.65 -0.15 Pr > z = Pr > z = 0.000 0.879 Prob > chi2 = 0.261 cxxxviii Dynamic panel-data estimation, one-step difference GMM Group variable: id Time variable : year Number of instruments = 137 F(12, 170) = 22.64 Prob > F = 0.000 Number of obs Number of groups Obs per group: avg max Std Err t P>|t| = = = = = 182 30 6.07 dloan Coef [95% Conf Interval] lloan L1 -.5852693 1204707 -4.86 0.000 -.8230805 -.347458 lgdp 4099218 1167258 3.51 0.001 1795032 6403404 drd L1 -.043927 -.0256691 0060628 0060764 -7.25 -4.22 0.000 0.000 -.055895 -.0376639 -.0319589 -.0136742 rddsize rddcap rddliq rddllp 0394052 1935684 -.0183273 7802614 0080838 072892 0600282 1.744293 4.87 2.66 -0.31 0.45 0.000 0.009 0.761 0.655 0234476 0496784 -.136824 -2.663003 0553627 3374584 1001694 4.223526 dsize L1 .1865307 1149633 1.62 0.107 -.0404088 4134701 dcapr L1 .3953321 3007841 1.31 0.191 -.1984207 9890849 dliqr L1 .3361239 2498535 1.35 0.180 -.157091 8293388 dllpr L1 1.398313 3.641039 0.38 0.701 -5.789158 8.585784 Instruments for first differences equation Standard D.(rddcap L.lgdp L.drd) GMM-type (missing=0, separate instruments for each period unless collapsed) L(2/7).(L.lloan rddsize rddliq rddllp L.dsize L.dcapr L.dllpr L.dliqr) Arellano-Bond test for AR(1) in first differences: z = Arellano-Bond test for AR(2) in first differences: z = Sargan test of overid restrictions: chi2(125) = 136.02 -3.62 -0.14 Pr > z = Pr > z = 0.000 0.892 Prob > chi2 = 0.236 cxxxix The effects of the 2008 global financial crisis on bank lending channel Dynamic panel-data estimation, one-step difference GMM Group variable: id Time variable : year Number of instruments = 154 F(13, 169) = 20.44 Prob > F = 0.000 Number of obs Number of groups Obs per group: avg max Std Err t P>|t| = = = = = 182 30 6.07 dloan Coef [95% Conf Interval] lloan L1 -.5360774 1214915 -4.41 0.000 -.7759138 -.2962409 lgdp 3722204 1213933 3.07 0.003 1325777 611863 di L1 -.0411484 -.030904 0060287 0065583 -6.83 -4.71 0.000 0.000 -.0530497 -.0438508 -.029247 -.0179571 vixidsize vixidcap vixidliq vixidllp 0015153 0064521 0001887 0239406 0002863 0023703 0018049 052738 5.29 2.72 0.10 0.45 0.000 0.007 0.917 0.650 0009501 0017728 -.0033743 -.0801694 0020805 0111313 0037518 1280507 lsize L1 .1163833 117544 0.99 0.324 -.1156604 3484271 capr L1 .0602466 303423 0.20 0.843 -.538741 6592341 liqr L1 .3540715 2463479 1.44 0.152 -.132244 8403869 llpr L1 2.634043 3.615388 0.73 0.467 -4.503096 9.771181 vix 0096373 0028481 3.38 0.001 0040149 0152596 Instruments for first differences equation Standard D.(vixidcap L.lgdp L.di) GMM-type (missing=0, separate instruments for each period unless collapsed) L(2/7).(L.lloan L2.vixidsize L2.lsize vixidliq L.capr L.llpr L2.liqr vixidllp) Arellano-Bond test for AR(1) in first differences: z = Arellano-Bond test for AR(2) in first differences: z = Sargan test of overid restrictions: chi2(141) = 146.55 -4.27 0.02 Pr > z = Pr > z = 0.000 0.983 Prob > chi2 = 0.357 cxl Dynamic panel-data estimation, one-step difference GMM Group variable: id Time variable : year Number of instruments = 138 F(13, 169) = 21.70 Prob > F = 0.000 Number of obs Number of groups Obs per group: avg max Std Err t P>|t| = = = = = 182 30 6.07 dloan Coef [95% Conf Interval] lloan L1 -.6713953 1246684 -5.39 0.000 -.9175032 -.4252873 lgdp 4735741 1220599 3.88 0.000 2326156 7145325 drd L1 -.0432154 -.0297186 0061089 0061734 -7.07 -4.81 0.000 0.000 -.055275 -.0419055 -.0311559 -.0175318 vixrddsize vixrddcap vixrddliq vixrddllp 0014239 0056929 -.0011511 0363267 0003196 0026127 0022147 062691 4.45 2.18 -0.52 0.58 0.000 0.031 0.604 0.563 0007929 0005353 -.005523 -.0874316 0020549 0108506 0032209 160085 dsize L1 .233322 1158739 2.01 0.046 0045752 4620688 dcapr L1 .5400253 2930527 1.84 0.067 -.0384902 1.118541 dliqr L1 .3642834 2535739 1.44 0.153 -.1362969 8648638 dllpr L1 2.492768 3.64427 0.68 0.495 -4.701387 9.686923 vix 0067295 0026312 2.56 0.011 0015353 0119238 Instruments for first differences equation Standard D.(vixrddcap L.lgdp L.drd vix) GMM-type (missing=0, separate instruments for each period unless collapsed) L(2/7).(L.lloan vixrddsize vixrddliq vixrddllp L.dsize L.dcapr L.dllpr L.dliqr) Arellano-Bond test for AR(1) in first differences: z = Arellano-Bond test for AR(2) in first differences: z = Sargan test of overid restrictions: chi2(125) = 139.20 -3.74 -0.25 Pr > z = Pr > z = 0.000 0.804 Prob > chi2 = 0.182 cxli Dynamic panel-data estimation, one-step difference GMM Group variable: id Time variable : year Number of instruments = 138 F(13, 169) = 21.90 Prob > F = 0.000 Number of obs Number of groups Obs per group: avg max Std Err t P>|t| = = = = = 182 30 6.07 dloan Coef [95% Conf Interval] lloan L1 -.6716043 1243022 -5.40 0.000 -.9169894 -.4262192 lgdp 4758143 1215032 3.92 0.000 2359548 7156739 drf L1 -.0479132 -.0323982 006703 0067567 -7.15 -4.79 0.000 0.000 -.0611457 -.0457366 -.0346807 -.0190597 vixrfdsize vixrfdcap vixrfdliq vixrfdllp 0015536 0062498 -.0012639 040654 0003499 0028647 0024229 0688463 4.44 2.18 -0.52 0.59 0.000 0.031 0.603 0.556 0008629 0005946 -.0060469 -.0952555 0022444 011905 0035192 1765636 dsize L1 .2296034 1156301 1.99 0.049 0013379 457869 dcapr L1 .5093827 2931883 1.74 0.084 -.0694004 1.088166 dliqr L1 .3628734 2535654 1.43 0.154 -.1376901 8634369 dllpr L1 2.417578 3.640104 0.66 0.507 -4.768353 9.603508 vix 0068033 0026239 2.59 0.010 0016235 0119831 Instruments for first differences equation Standard D.(vixrfdcap L.lgdp L.drf vix) GMM-type (missing=0, separate instruments for each period unless collapsed) L(2/7).(L.lloan vixrfdsize vixrfdliq vixrfdllp L.dsize L.dcapr L.dllpr L.dliqr) Arellano-Bond test for AR(1) in first differences: z = Arellano-Bond test for AR(2) in first differences: z = Sargan test of overid restrictions: chi2(125) = 139.33 -3.74 -0.26 Pr > z = Pr > z = 0.000 0.791 Prob > chi2 = 0.180 ... exist in Vietnam? Does bank lending channel exist in Vietnam? And bank size, bank capital, bank liquidity, bank risk, and the 2008 global financial crisis effect on bank lending channels in Vietnam? ... to investigate the existing of interest rate channel, exchange rate channel, asset price channel, and bank lending channel in Vietnam which are seen as the main channels in monetary policy transmission. .. the bank lending channel in Vietnam Since the bank lending channel is a sub -channel in credit channel, meanwhile the other channels such as interest rate channel, exchange rate channel, and asset

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