Chính sách tiền tệ với phân phối thu nhập khu vực hộ gia đình việt nam: Bằng chứng từ mô hình DSGEChính sách tiền tệ với phân phối thu nhập khu vực hộ gia đình việt nam: Bằng chứng từ mô hình DSGEChính sách tiền tệ với phân phối thu nhập khu vực hộ gia đình việt nam: Bằng chứng từ mô hình DSGEChính sách tiền tệ với phân phối thu nhập khu vực hộ gia đình việt nam: Bằng chứng từ mô hình DSGEChính sách tiền tệ với phân phối thu nhập khu vực hộ gia đình việt nam: Bằng chứng từ mô hình DSGEChính sách tiền tệ với phân phối thu nhập khu vực hộ gia đình việt nam: Bằng chứng từ mô hình DSGEChính sách tiền tệ với phân phối thu nhập khu vực hộ gia đình việt nam: Bằng chứng từ mô hình DSGEChính sách tiền tệ với phân phối thu nhập khu vực hộ gia đình việt nam: Bằng chứng từ mô hình DSGEChính sách tiền tệ với phân phối thu nhập khu vực hộ gia đình việt nam: Bằng chứng từ mô hình DSGEChính sách tiền tệ với phân phối thu nhập khu vực hộ gia đình việt nam: Bằng chứng từ mô hình DSGEChính sách tiền tệ với phân phối thu nhập khu vực hộ gia đình việt nam: Bằng chứng từ mô hình DSGEChính sách tiền tệ với phân phối thu nhập khu vực hộ gia đình việt nam: Bằng chứng từ mô hình DSGEChính sách tiền tệ với phân phối thu nhập khu vực hộ gia đình việt nam: Bằng chứng từ mô hình DSGEChính sách tiền tệ với phân phối thu nhập khu vực hộ gia đình việt nam: Bằng chứng từ mô hình DSGEChính sách tiền tệ với phân phối thu nhập khu vực hộ gia đình việt nam: Bằng chứng từ mô hình DSGEChính sách tiền tệ với phân phối thu nhập khu vực hộ gia đình việt nam: Bằng chứng từ mô hình DSGEChính sách tiền tệ với phân phối thu nhập khu vực hộ gia đình việt nam: Bằng chứng từ mô hình DSGEChính sách tiền tệ với phân phối thu nhập khu vực hộ gia đình việt nam: Bằng chứng từ mô hình DSGEChính sách tiền tệ với phân phối thu nhập khu vực hộ gia đình việt nam: Bằng chứng từ mô hình DSGEChính sách tiền tệ với phân phối thu nhập khu vực hộ gia đình việt nam: Bằng chứng từ mô hình DSGEMicrosoft Word TOM TAT LUAN AN CAP TRUONG (EN) docx MINISTRY OF EDUCATION AND TRAINING STATE BANK OF VIETNAM HO CHI MINH CITY UNIVERSITY OF BANKING TRIEU KIM LANH MONETARY POLICY WITH VIETNAM HOUSEHOL.
MINISTRY OF EDUCATION AND TRAINING STATE BANK OF VIETNAM HO CHI MINH CITY UNIVERSITY OF BANKING TRIEU KIM LANH MONETARY POLICY WITH VIETNAM HOUSEHOLD INCOME DISTRIBUTION: EVIDENCE FROM THE DSGE MODEL SUMMARY OF THE THESIS Major: Banking and Finance CODE: 34 02 01 Scientific Instructor: Assoc Prof Dr NGUYEN DUC TRUNG HO CHI MINH CITY - 2023 CHAPTER : OVERVIEW OF THE RESEARCH TOPIC 1.1 The urgency of the research topic Research on the distributional effects of monetary policy on income inequality has received more attention since the global economic and financial crisis (period 2007 - 2009) While there is much debate in developed economies regarding its impact, in emerging economies, this issue is also receiving more and more attention In mature financial markets, coupled with inadequate access to formal financial institutions, limits the ability of households to insure against shocks and exaggerates the distributive effects of overall macroeconomic fluctuations Theoretically, expansionary monetary policy can have ambiguous effects on household income distribution, which manifest through income inequality indicators such as: (i) increasing inequality (do asset price appreciation, which favours high-income households holding larger financial assets; inflation, which affects low-income households holding more liquid assets), (ii) reducing inequality (to the advantage of borrowers and disadvantage of savings depositors; economic activity has a greater impact on the incomes of workers in the lowest income quintile of the distribution) Many studies have been carried out by countries and by country regions of the world in recent times to seek unified answers to the above-mentioned issues In countries with developed economies, studies have shown mixed results when studying the relationship between monetary policy and income, redistribution of wealth, and inequality between rich and poor, such as Alves and Silva (2021), Hohberger et al (2020), Ampudia et al (2018), Guerello (2018), and Lenza and Slacalek (2018) with the European economy; Albert and Gómez-Fernández (2021), Albert et al (2020), Doepke et al (2019), and Davtyan (2017) with the US economy; Mumtaz and Theophilopoulou (2020) with the UK economy; Israel and Latsos (2020), and Lee (2020) with the Japanese economy; Kuncl and Ueberfeldt (2021) with the Canadian economy; Zhang et al (2021) with the Chinese economy Guerello (2018), Hohberger et al (2020), and Israel and Latsos (2020) study both traditional and nontraditional monetary policy; Lenza and Slacalek (2018), and Lee (2020) assess the impact of quantitative easing on income distribution Within Southeast Asian countries, Punzi (2020) studying the distributional effects of monetary policy in ASEAN economies gave similar results to Guerello (2018), and Davtyan (2017) Specifically, the expansionary monetary policy shock tends to reduce income inequality and narrow the gap between rich and poor In Vietnam, research on the distributional effects of monetary policy on income inequality has been recently developed with the study of Tran Huu Tuyen et al (2020); Vu Ngoc Huong et al (2019) with similar results to Punzi (2020) On August 8, 2018, Vietnam’s Banking Industry Development Strategy to 2025 with an orientation to 2030 was approved by the Prime Minister in Decision No 986/QD-TTg, according to which one of the tasks The proposed solution is to innovate "The monetary policy framework is aimed at controlling inflation, stabilizing the value of money, contributing to maintaining macroeconomic stability, creating favourable conditions for conditions to improve the efficiency of capital mobilization and allocation in the economy, promoting sustainable economic growth; increasing the independence of the State Bank of Vietnam in conducting monetary policy Operating monetary policy gradually changed from operating according to the volume of money to mainly operating according to price; using indirect tools, gradually removing administrative measures on interest rates when conditions permit; continuing to operate open market operations in the direction of being the main tool to regulate the available capital of credit institutions, to achieve monetary policy objectives in each period” Along with the Banking Industry Development Strategy, on February 1, 2019, the Non-observed Economic Sector Statistics Scheme was issued together with Decision No 146/QD-TTg according to which the economic sector has not been statistical observations will be made, including 05 groups: (i) Underground economic activities, (ii) Illegal economic activities, (iii) Unobserved informal economic activities, (iv) Economic activities of households' self-production and self-consumption and (v) Economic activities are omitted in statistical data collection programs (Trieu Kim Lanh et al., 2021) On January 22, 2020, the Prime Minister approved the National Financial Inclusion Strategy to 2025, with a vision to 2030, to achieve the goal of "All people and businesses have safe and convenient access and use with appropriate financial products and services, at reasonable costs, from licensed organizations responsibly and sustainably” With the above Strategies, the household sector is increasingly interested in building and developing the State's socio-economic development programs So, the question posed for the future trend of monetary policy management is that, besides the final goal according to the Law on the State Bank of 2010, can we set a target towards the household sector, for example, a target of reducing household income inequality? When analyzing the correlation between the fluctuations in monetary policy management with the changes in income, household expenditure and income inequality, from the actual data, the thesis finds that the stages of the State Bank of Vietnam's monetary policy implementation (through increasing /reducing the interest rate instrument and other combined measures) will reduce/increase household consumption in the short run and household income inequality has changed However, exploiting the influence of monetary policy on the household sector for domestic studies is still not much, especially empirical studies applying the DSGE model, not combined with an overview analysis of income, expenditure and income inequality through the Results of Vietnam Households Living Standards Survey Aim to study the impact of monetary policy on the results of income distribution in the household sector to imply policy towards reducing income inequality This is also an important motivation for the thesis to carry out this research Unlike previous studies on this research topic conducted in Vietnam, the thesis proposes a DSGE model with 06 main equations, suitable for Vietnam's small and open economy, supplementing the money supply function equation and consumption function equation to measure the response of the household sector to monetary policy shocks are consistent with the practice of monetary policy implementation of the State Bank of Vietnam In addition, the study will experiment with the same data set with the VAR model adding the Gini coefficient, the world trade uncertainty index (WTUI) and the world uncertainty index (WUI), to measure the response of the household sector through income distribution taking into account global macroeconomic instability The thesis is expected to be able to make specific and scientific estimates of the effect of monetary policy on the household sector and income distribution in Vietnam Finally, the thesis also has another small contribution, which is to make a forecast on the impact of monetary policy on inflation in Vietnam in the period of 2022 - 2025 based on the results of the DSGE model proposed by the thesis 1.2 Objectives of the study 1.2.1 Overall objectives The thesis focuses on assessing the impact of monetary policy on the results of income distribution in Vietnam's household sector in the period 1996 - 2021 through income, expenditure and income inequality, thereby providing scientific evidence theoretically and empirically to imply that monetary policy implementation is aimed at reducing income inequality in the household sector 1.2.2 Detail goals - Assessing the evolution of monetary policy implementation of the State Bank of Vietnam along with an overview of income, expenditure, and income inequality in the period 1996 - 2021 - Assessing the impact of monetary policy on the income distribution in the Vietnamese household sector through consumer spending and income inequality for the period 1996 2021 - Policy implications and recommendations on monetary policy implementation with household income distribution in Vietnam 1.3 Research questions - What is the evolution of monetary policy implementation of the State Bank of Vietnam along with an overview of income, expenditure and income inequality in the household sector in the period 1996 - 2021? - What is the response of the household sector to monetary policy shocks through consumer spending and income inequality in the period 1996 - 2021? - What are the policy implications for operating monetary policy towards reducing income inequality in Vietnam? 1.4 Object and scope of the study 1.4.1 Research subjects The research object of the thesis is the monetary policy of the State Bank of Vietnam and the income distribution of the Vietnamese household sector 1.4.2 Research scope Spatial scope: research topic on the impact of monetary policy on the results of income distribution in the household sector in Vietnam Time range: - Regarding the overall assessment: the topic evaluates the monetary policy operation of the State Bank of Vietnam from 1996 to 2021, to have an overview of the monetary policy implementation of the State Bank in this period, combined with an analysis of the income, consumer spending and household income inequality in the same study period - Regarding the experiment: the topic of empirical research in the period 1996 - 2021 quantifies the macro impacts that monetary policy brings to the household sector through the analysis of monetary policy shocks on consumer spending and income equality 1.5 Research Methods To achieve the first research objective, the thesis synthesizes reports on monetary policy implementation of the State Bank of Vietnam, the reports are related to the household sector of the same period and the results of Vietnam Households Living Standards Survey (VHLSS) from the General Statistics Office (GSO) and the World Bank (WB) to analyze the reported data and make an overall assessment of the monetary policy operation and income, expenditure, income inequality in the household sector in the period 1996 - 2021 To achieve the second research objective, the thesis collects data on variables for the period 1996 - 2021 from reliable domestic and international sources such as the State Bank of Vietnam (SBV), the General Statistics Office (GSO), International Monetary Fund (IMF), the World Bank (WB), Asia Regional Integration Center - Asian Development Bank (Asia Regional Integration Center - ARIC, ADB), ST Louis Fed, Standardized World Income Inequality Database (SWIID), World Uncertainty Index Database (WUI) and experimental econometric models (DSGE and VAR models) to quantify the impact of monetary policy on household income distribution in Vietnam through analysis of monetary policy shocks to consumer spending and income inequality, thereby concluding both overall research paper, as a basis for recommendations and policy implications for the third research objective In particular, the thesis proposes to the State Bank of Vietnam a DSGE model suitable for Vietnam's small open economy based on inheriting from the DSGE model built for the SBV and developing more equations related to households to contribute to improving the analysis and forecasting ability of the State Bank in this area 1.6 The scientific and practical significance of the thesis The research topic "Monetary policy with Vietnam household income distribution: Evidence from the DSGE model" has scientific, practical and policy significance From a scientific perspective, research on the impact of monetary policy on the household sector and income distribution has not been explored much in Vietnam, especially the application of the DSGE model in assessing the policy impact to the household sector, the thesis will provide empirical evidence showing the extent of the impact of monetary policy on the household sector in Vietnam, referencing the DSGE model of the central banks over the world is adjusted to suit the socio-economic characteristics and operating monetary policy in Vietnam, while empirical studies on the impact of monetary policy in Vietnam related to the household sector are exploited based on the DSGE model is still quite new and complicated, the thesis proposes DSGE model with 06 main equations suitable for Vietnam's small open economy, including the micro-equation on the household sector and the thesis conducts experiment on the VAR model from that to make overall conclusions about the impact of policy administration on the household sector and income distribution From a policy perspective, the State Bank of Vietnam urgently needs critical information from scientists in measuring the impact of the policy, and its lag in practice, from which there will be a lot of multi-dimensional information contributing to better orientation for policymakers in forecasting and subsequent decision making In addition, the research topic "Monetary policy with Vietnam household income distribution: Evidence from the DSGE model" has practical significance, especially in the context that the household sector is object are more and more interested in macroeconomic policy management, the results of the thesis show that the household sector reacts to the impact of monetary policy and is a reference basis for managers in implementing monetary policy for assessing, forecasting and planning future macroeconomic policies While there are not many empirical studies on the household sector in Vietnam related to the impact of the state's macro policies in general, the study will contribute valuable scientific evidence in the study of the income distribution of the household sector and the impact of monetary policy on this sector in Vietnam 1.7 Research design 1.8 Thesis structure The thesis is presented in chapters, with the main contents as follows: - Chapter Overview of the research topic - Chapter The theoretical basis of monetary policy, income distribution and research model - Chapter Research methods - Chapter Research results and discussion - Chapter Conclusion, policy implications 1.9 Summary of Chapter CHAPTER : THE THEORETICAL BASIS OF MONEY POLICY, INCOME DISTRIBUTION AND RESEARCH MODEL 2.1 The theoretical basis of conventional monetary policy 2.1.1 The concept of conventional monetary policy 2.1.2 Tools of conventional monetary policy 2.1.3 Transmission of conventional monetary policy 2.2 The theoretical basis of unconventional monetary policy 2.2.1 The concept of unconventional monetary policy 2.2.2 Tools of unconventional monetary policy 2.2.2.1 Liquidity Provider 2.2.2.2 Large-scale asset purchase tool 2.2.2.3 Forward-looking tool 2.2.2.4 Negative interest rate tool 2.2.2.5 Some other tools 2.2.3 Transmission of unconventional monetary policy 2.3 The theoretical basis of income distribution 2.3.1 Measures of Inequality in income distribution 2.3.1.1 Lorenz curve 2.3.1.2 Gini coefficient 2.3.2 The theoretical basis of income distribution 2.4 The impact of monetary policy on household sector income distribution Monetary policy affects income and wealth distribution in a variety of ways Monetary policy affects households or individuals through three main effects: income effect, wealth effect, and substitution effect The sum of the distributive effects of monetary policy determined by the different transmission channels that monetary policy can have on income inequality, categorizing the sum of allocative effects into five specific channels as follows: Income Composition Channel, Financial Segmentation Channel, Portfolio Channel, Savings Redistribution Channel, Earnings Heterogeneity Channel Nakajima (2015) summarizes the five channels of monetary policy into two main distribution channels: the inflation channel and the income channel 2.5 The theoretical basis of the research model 2.5.1 Dynamic stochastic general equilibrium model according to the Theory of real business cycle 2.5.2 Dynamic stochastic general equilibrium model according to Neoclassical Theory 2.5.3 Vector autoregression model 2.6 Overview of related studies on monetary policy with household income distribution and DSGE model applied in Vietnam 2.6.1 Foreign studies 2.6.2 Domestic studies 2.6.3 Summary of previous research results and research gaps From the synthesized issues, the thesis identifies gaps in previous studies and proposes the research content of the thesis as follows: - The thesis conducts an overview analysis of monetary policy implementation in Vietnam in the period 1996 - 2021 along with analyzing the current situation of income, expenditure, and income inequality in the household sector through the results of the Vietnam households living standard survey (VHLSS), thereby showing the evolution of this area in the same period of monetary policy - The thesis conducts experiments on the impact of monetary policy on the results of income distribution in the household sector through the DSGE model and the VAR model to quantify the impact of shocks The DSGE model is one of the quite complex but comprehensive models and is starting to be exploited more in research in Vietnam, this is a popular model used by central banks in the world in macroeconomic analysis and forecast and is an appropriate model for studies involving the combination of macro and micro variables Research results from 02 quantitative models show the impact of monetary policy on consumer spending and income inequality, thereby assessing the level of the impact of the monetary policy of the SBV Vietnam for the household sector, contributing empirical evidence for policy implications and recommendations The proposed equations in the DSGE model and the VAR model of the thesis also contribute in terms of theoretical and empirical basis to the policy research process in Vietnam 2.7 Summary of chapter CHAPTER : RESEARCH METHODS 3.1 The proposed DSGE model Within the scope of the thesis, the DSGE model is proposed based on inheriting the equations from the DSGE model built by the State Bank of Vietnam's Statistical Forecasting Department in consultation with experts from the IMF and JICA Japan, suitable for the small and open economy of Vietnam to estimate the shocks that the model brings, thereby assessing the impact on the economy's aggregate demand In addition, the thesis adds the money supply model (M2) referenced from the research DSGE model for the State Bank of Vietnam under the industry-level topic of the research team Nguyen Duc Trung et al (2019), the equation for money supply (M2) is one of the basic equations besides the equation to determine the relationship of interest rates and exchange rates to be more suitable with the actual operating policies of the State Bank1 Finally, the DSGE model of the thesis proposes to supplement the representative equation for the household sector to serve the purpose of assessing monetary policy shock in this area The proposed DSGE model in the thesis is as follows: 𝑥! = 𝑥!"# − (𝑟! − 𝑝!"# ) − 𝛽$ 𝑒! + 𝛽% 𝑢𝑠! + 𝛽#$ 𝑜𝑖𝑙! + 𝑔! (1) The IMF model identifies changes in monetary policy through the response of interest rates and exchange rates This is only suitable for central banks that use an intermediary tool that is the target interest rate (or target rate) to achieve the ultimate goal of stabilizing inflation (output) 13 Variables in the model 𝛽$ , 𝛽% , 𝛽& , 𝛽'→)) Data source Parameters to be estimated Estimation from the DSGE model gini The Gini coefficient, which represents income inequality, represents the unequal distribution of income between groups of households ggdp Vietnam's GDP growth Standardized World Income Inequality Database (SWIID) and estimates from the VAR model World Bank (WB) and estimates from the VAR model wui wtui The World Uncertainty Index represents global macro https://worlduncertaintyindex.com fluctuations such as epidemics, geopolitical conflicts, /data/ terrorism, etc The World Trade Uncertainty Index is a proxy for macro https://worlduncertaintyindex.com fluctuations in world trade such as trade wars, economic /data/ crises, etc Source: Author's compilation 3.4 Research methods 3.5 Research process 3.6 Summary of chapter CHAPTER : RESEARCH RESULTS AND DISCUSSION 4.1 Overview of monetary policy implementation of the State Bank of Vietnam in the period 1996 - 2021 4.1.1 Conventional monetary policy implementation 4.1.2 Unconventional monetary policy implementation 4.2 Overview of Vietnam household income distribution for the period 1996 - 2021 4.3 Analyze and discuss results from experimental models 4.3.1 Descriptive statistics With 104 observations of variables in both DSGE and VAR models, quarterly frequency data were collected for the period 1996Q1 – 2021Q4, Table 4.12 descriptive statistics of interest rate variable 𝑟, inflation variable 𝑝, exchange rate variable 𝑒, money supply variable 𝑚, consumption variable 𝑐, variable 𝑔𝑔𝑑𝑝, variable 𝑔𝑖𝑛𝑖, variable wui, and variable wtui are observable endogenous variables; US output deviation variable 𝑢𝑠, change the price of oil oil are exogenous variables with observable values 14 4.3.2 Stationarity test of data The specific test results are presented in Table 4.13 4.3.3 Vietnam's household sector response to monetary policy shock: Approach from the DSGE model Measuring the response of the household sector is carried out in the DSGE model with the proposed 06 main equations (section 3.1) giving the estimated results of the parameters presented in Table 4.14 From DSGE model estimation results show the regression coefficients of expected future inflation variables (𝛽& ), output deviation (𝜅) and expected policy interest rate (𝛽* ) p-value is less than 1% significance level Thus, future expected inflation and output deviation have an impact on inflation, the SBV's operating interest rate is also affected by expected interest rate and current inflation, completely consistent with the Rule of Taylor The parameter is the slope of the Phillips curve 𝜅 (equation (2)), the theory predicts that this parameter will be positive, and indeed in Table 4.14, which 𝜅 gives a positive value, is in perfect agreement with the theory The parameter 𝛽* in the interest rate equation (equation (3)) represents the SBV's response to inflation movements Table 4.14: Estimating the DSGE model Model DSGE _ Number of observations = Model: 1996q2 - 2021q4 103 Log-likelihood = -970.79021 Coef Std err z P > |z| [95% conf interval] -1.41442 -0.11504 0.0055 0.274088 0.556796 -62.7862 0.444159 -0.00257 -0.09436 -2.60636 -2.75436 -0.00092 0.89223 0.793481 -0.26622 1.860984 0.312218 0.055959 0.87435 2.332295 -6.71932 0.871395 0.001961 0.653036 0.639342 -0.35357 0.002151 1.0127 1.055246 0.170632 /structural beta2 beta3 beta12 beta4 kappa beta5 beta6 beta7 beta8 beta9 beta10 beta11 rhog rhon rhou 0.223284 0.098587 0.03073 0.574219 1.444545 -34.7527 0.657777 -0.0003 0.27934 -0.98351 -1.55396 0.000617 0.952465 0.924364 -0.0478 0.835577 0.108998 0.012872 0.153131 0.452942 14.30303 0.108991 0.001155 0.190665 0.828 0.612458 0.000783 0.030733 0.066778 0.111445 0.27 0.9 2.39 3.75 3.19 -2.43 6.04 -0.26 1.47 -1.19 -2.54 0.79 30.99 13.84 -0.43 0.789 0.366 0.017 0.000 0.001 0.015 0.000 0.793 0.143 0.235 0.011 0.43 0.000 0.000 0.668 15 rhov rhok rhoz rhoa rhob 0.812389 0.998717 0.144618 -0.02602 0.589816 0.055233 0.001842 0.095949 0.20552 0.083684 sd(eg) sd(en) sd(eu) sd(ev) sd(ek) sd(ez) sd(ea) sd(eb) 1.337772 0.399996 0.92155 1.18861 0.016989 15.38192 5.618017 0.077761 0.124339 0.220453 0.237939 0.082836 0.001219 1.072187 0.39208 0.016772 14.71 542.26 1.51 -0.13 7.05 0.000 0.000 0.132 0.899 0.000 0.704133 0.995107 -0.04344 -0.42883 0.425798 0.920644 1.002326 0.332674 0.376791 0.753834 1.094072 -0.03208 0.455198 1.026255 0.0146 13.28047 4.849553 0.044888 1.581471 0.832076 1.387903 1.350965 0.019377 17,48336 6.38648 0.110633 Source: calculation results from Stata software Appendix - Table 5.1 shows the matrix of the parameters in space-state form, defining how the state variables affect the control variables This is called the policy matrix To see more clearly the impact of the DSGE model, Appendix - Table 5.2 shows the policy equation for inflation 𝑝 and writes it as an eigenfunction of the state variables A unit shock to the state variable 𝑢 (𝑢 increase of 1%) represents the monetary policy effect of the central bank (the central bank creates the shock) reducing estimated inflation by 1.20%, 𝑥 (output deviation) by 0.66% Thus, a shock 𝑢 occurs, causing interest rates to increase, and output deviation to decrease, reducing inflation The state variables in Appendix – Table 5.2 are all modelled as autoregressive processes, so the results in the state transition iterative estimates of rhor, rhon, rhou, rhov, rhok, rhoz from the output of the DSGE model (Table 4.14) In this case, the other entries in the state transition matrix are either zero or non-zero simply because of the lack of numerical precision 16 Figure 4.17: The impulse response function analyzes the shock 𝒖 (effect of the central bank) Source: calculation results from Stata software State variables 𝑢 model movements in interest rates that occur for reasons other than feedback between inflation and interest rates A shock to inflation 𝑢 is an unexpected increase in interest rates, and the IRF finds out how this shock causes a temporary decrease in inflation (Figure 4.17, leftmost 2nd-row graph) and output deviation (Figure 4.17, leftmost 3rd-row graph) A shock (standard deviation) of 1% increase to the state variable 𝑢 will cause interest rates to increase by approximately 0.29% from the first quarter, the output deviation will decrease by 0.66%, which will reduce inflation by nearly 1.20% The impact of the state variable shock 𝑢 will gradually decrease and disappear after quarters For household consumption, the impulse response function also shows that the shock 𝑢 has an impact on household consumption, decreasing by about 0.041 per cent Thus, monetary policy shock has an impact on households through the consumption function, a shock that 𝑢 increases by 1% causes the interest rate to increase by 0.29% leading to consumption households decreasing by about 0.041% Interest rates, output deviation, inflation, and household consumption react to shocks 𝑢 and cancel out after year 17 The results from the DSGE model are completely consistent with the theory of monetary policy transmission to macro variables and are also empirical evidence that the results obtained from monetary policy operations of the State Bank, especially during the COVID19 outbreak from the end of 2019 - 2021 The SBV had timely and effective responses to the interest rate tool by reducing the operating interest rates combined with a series of traditional and other non-traditional measures (SBV, 2020) Vietnam is one of the few countries in the world with positive economic growth, Vietnam's GDP growth reaching 2.91% in 2020 and 2.59% in 2021 is an impressive growth rate, demonstrating the resilience of the country Vietnam has suffered significantly from the great impact of the COVID-19 pandemic and other macro uncertainties (economic crisis, geopolitical conflicts, etc.) during this period (SBV, 2022b; WB, 2021) In addition, the results from the DSGE model also show that the household sector has had appropriate responses to the change of operating interest rates similar to theoretical expectations, from which the economy quickly returns to equilibrium if shocks occur Thus, exported conditions for the SBV to switch to operating according to the interest rate target (instead of operating according to the current monetary volume target) when the SBV's management has played a clear role in the ultimate goal of monetary policy is price stability The specific effects of monetary policy shocks on household income distribution results will be further discussed through impulse response function analysis and variance decomposition from the estimation of the empirical VAR model with income inequality coefficient (Gini coefficient) 4.3.4 The impact of monetary policy on Vietnam household income distribution: experimental VAR model With the theoretical model approaching from the DSGE model, it shows that macro and micro variables (represented by household consumption) have quite strong responses to monetary policy shocks, this change is completely consistent with economic theory However, the DSGE model approach initially shows an effect on household income through consumption, but it has not yet shown a specific impact on the degree of household income dispersion in the economy To explain more specifically the impact of monetary policy on macro variables of the economy and household income distribution in Vietnam, the thesis conducts an experimental VAR model with macro variables including GDP growth ggdp, 18 inflation 𝑝 (CPI), policy interest rate variables 𝑟, USD/VND exchange rate 𝑒 and money supply m (representative of monetary policy), world trade uncertainty index (representing international economic factors impact such as the US-China trade war ), the world uncertainty index (representing the impact of macroeconomic instability from the world such as geopolitical conflicts, Brexit events, COVID-19 epidemic ) and Gini coefficient 𝑔𝑖𝑛𝑖 (representing household income distribution) through impulse response function analysis and Cholesky variance decomposition The variables and VAR model proposed in this study are inherited from previous studies, especially Nguyen Thi Minh (2010), Pham Thi Tuyet Trinh (2017) and Nguyen Duc Trung et al (2022) Testing the stationarity of time data series has been performed and the results are presented in Table 4.13, all data series 𝑝, 𝑟, 𝑤𝑢𝑖, 𝑤𝑡𝑢𝑖 are stationary series, 𝑒 non-stationary series, so the thesis will be used 𝑙𝑛𝑒 to run in the model, money supply series (m), household consumption series (c), series of Gini coefficients (gini) and GDP growth (ggdp) stop at the first difference The optimal lag test selected by the criteria is not uniform, but most of the selection criteria agree to choose the delay step The tests show that the VAR model in the study is stable and has no autocorrelation at the selected optimal lag The analysis of the impulse response function will show specifically the mechanism of monetary policy shock transmission on the macro variables of the economy and the distribution of household income in Vietnam Figure 4.19 shows the response of variables of interest rate, inflation, GDP growth, household consumption and Gini coefficient to shock from the monetary policy operation of the State Bank of Vietnam Figure 4.19 shows that monetary policy implementation has an impact on household income distribution, which is quite small and long-lasting When there was a shock of interest rates in the past (the SBV implemented tight monetary policy by raising interest rates) causing household consumption to decrease, GDP growth reacted to a decrease after quarters and to an end after about years The monetary policy shock causes inflation to be similarly affected, the inflation response lasts and fades after years The response of inflation and GDP growth is completely consistent with the predictions of economic theories Similarly, monetary policy shocks have an impact on household income distribution, specifically reducing income inequality after about 2-3 quarters and this effect takes place in the long run Thus, the operating monetary policy of the SBV (through interest rate shock) reduces consumer spending, narrows the inequality gap, and also reduces GDP growth and inflation after 19 quarters This process tends to slow down in the long run IRF2, r, dc IRF2, r, dggdp IRF2, r, p IRF2, r, r -.5 -.5 10 15 10 15 Step 95% CI Impulse–response function Graphs by irfname, Impulse variable, and Response variable Figure 4.19: The impulse response function analyzes the monetary policy shock of the central bank Source: Calculation results from Stata software The VAR model has provided empirical evidence that there is a relationship between household income distribution (income inequality) and monetary policy management (policy interest rates) of the SBV The Granger test shows that there is a causal relationship between inflation and interest rates, which is completely consistent with economic theories and operating monetary policy in Vietnam in practice; Income inequality can explain the change in interest rates, in other words, the monetary policy management of the State Bank is concerned with income inequality, in addition, inflation is also the cause of the interest rate changes, leading to a change in household consumption, affecting income inequality The World Uncertainty Index reflects world fluctuations such as the COVID-19 epidemic (end of 2019 to present), Brexit events (06/2016-01/2020), geopolitical conflicts (the Iraq war, 9/11 events of the US…) can be used to explain changes in income inequality Thus, the Granger test in the VAR model shows that the causal relationship between the variables is quite consistent with the reality of Vietnam The SBV's monetary policy management has always closely followed the world situation, managed it cautiously, and flexibly, and coordinated