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 vietnam

MINISTRY OFEDUCATIONAND TRAINING STATEBANK OF VIET NAM

HO CHI MINH UNIVERSITY OFBANKING

NGO SY NAM

THE EFFECTS OF THE UNITEDSTATES’UNCONVENTIONALMONET

ARYPOLICYON FINANCIALMARKETANDREALECONOMY:EVI

DENCE INVIETNAM

PH.D THESIS

MAJOR: FINANCE AND BANKING

HO CHI MINH CITY, MARCH – 2024

MINISTRY OFEDUCATIONAND TRAINING STATEBANK OF VIET NAM

HO CHI MINH UNIVERSITY OFBANKING

NGO SY NAM

THE EFFECTS OF THE UNITEDSTATES’UNCONVENTIONALMONET

ARYPOLICYON FINANCIALMARKETANDREALECONOMY:EVI

DENCE INVIETNAM

PH.D THESIS

ACADEMIC ADVISORS :Assoc.Prof Dr DOAN THANH HA

HO CHI MINH CITY, MARCH – 2024

DECLARATION

I am Ngo Sy Nam, Ph.D Student, Course 25, majoring in Finance and Bankingat

Ho Chi Minh University ofBanking

This thesis has never been submitted for a doctoral degree at any institution Thisthesisistheauthor’sindependentresearchwork.Theresearchresultsarehonest,andthere is no contentpublished previously or implemented by others except for the quotations fully cited in thethesis

I am responsible for the content of this study

Ph.D.Student

Ngo SyNam

ACKNOWLEDGEMENTS

I want to express my appreciation to the Ho Chi Minh University ofBanking.Ihaveattendedtoprovidemewithanurturingacademicenvironmentandopportunitiesforpersonal growth Their commitment to excellence in education has been instrumental in shaping

my intellect and preparing me for futureendeavors

IamdeeplygratefultoAssociateProfessorDr.DoanThanhHa,mysupervisor,for hisinvaluable guidance, mentorship, and encouragement throughout my research and academicpursuits Their expertise and constructive feedback have played a crucial role in shaping thedirection of my studies and enhancing the quality of mywork

Isincerelythankmyfamily,especiallymywife,forherunwaveringsupport,love, andunderstanding Their constant encouragement and belief in my abilities have been a source ofstrength and motivation, enabling me to overcome challenges and strive for excellence

To everyone who has been part of my journey, directly or indirectly, your supportand belief in my potential have been instrumental in my academic and personal growth.I

am deeply grateful for your presence in mylife

Ph.D StudentNgo Sy Nam

ABBREVIATIONS

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

Fed Federal Reserve

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

IRF Impulse response function

IRR Interest rate

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

SSR Shadow short rate

SVAR Structural vector autoregressionTAF Term Auction Facility

UMP Unconventional monetary policy

VAR Vector autoregression

VIX CBOE volatility index

TABLE OF CONTENTS

DECLARATION i

ACKNOWLEDGEMENTS ii

ABBREVIATIONS iii

TABLEOFCONTENTS v

LISTOFTABLES ix

LISTOFFIGURES x

ABSTRACT xii

1 CHAPTER1:INTRODUCTION 1

1.1 MOTIVATIONOFRESEARCH 1

1.2 RESEARCHOBJECTIVES 9

1.3 RESEARCHQUESTIONS 10

1.4 THE SCOPE OFTHISSTUDY 10

1.5 RESEARCH METHODOLOGIESANDDATA 12

1.5.1 Researchmethodology 12

1.5.1.1 Eventstudymethod 12

1.5.1.2 Structural vectorautoregressionmodel 13

1.5.2 Researchdata 13

1.6 RESEARCHCONTRIBUTIONS 14

1.7 THE STRUCTURE OFTHESTUDY 15

2 CHAPTER 2:LITERATUREREVIEW 18

2.1 CONCEPTUALFRAMEWORK 18

2.1.1 Conventionalmonetarypolicy 18

2.1.1.1 Definition 18

2.1.1.2 Conventional monetary policytools 18

2.1.1.3 Transmission mechanism of conventionalmonetarypolicy 21

2.1.2 Unconventionalmonetary policy 24

2.1.2.1 Definition 24

2.1.2.2 Unconventional monetarypolicytools 25

2.1.2.3 Transmission mechanism of unconventionalmonetarypolicy 28

2.1.2.4 International transmission of unconventionalmonetarypolicy 32

2.1.2.5 The differences between UMPandCMP 35

2.1.3 Financial market andrealeconomy 37

2.1.3.1 Financialmarket 37

2.1.3.2 Realeconomy 41

2.2 THEORETICAL FOUNDATIONS OFTHESTUDY 41

2.2.1 The EfficientMarketHypothesis 42

2.2.2 Taylorrule 43

2.2.3 Asset pricing by discountedcashflow 44

2.2.4 Milton Friedman's moneydemandtheory 45

2.2.5 Tobin’sqtheory 46

2.2.6 TheMundell-Fleming-Dornbuschmodel 47

2.3 LITERATUREREVIEW 48

2.3.1 The effects of unconventionalmonetarypolicy 48

2.3.2 Themethodologies review 56

2.3.2.1 Eventstudymethodology 56

2.3.2.2 Vectorautoregressivemodelapproach 60

2.3.3 Researchgapidentification 64

3 CHAPTER 3: RESEARCH METHODOLOGYANDDATA 68

3.1 RESEARCHMETHODOLOGY 68

3.1.1 Eventstudymethod 68

3.1.1.1 Introduction to eventstudymethodology 68

3.1.1.2 The steps of eventstudymethodology 69

3.1.2 Structural vectorautoregressivemodel 75

3.1.2.1 introduction to structural vectorautoregressivemodel 75

3.1.2.2 Researchprocedures 76

3.1.2.3 Proposedresearchmodel 78

3.1.2.4 Researchvariables 80

3.2 RESEARCHDATA 83

3.2.1 DataforESM 83

3.2.2 Data forSVARmodel 86

3.3 RESEARCHHYPOTHESES 87

4 CHAPTER 4:RESEARCHRESULTS 92

4.1 OVERVIEW OF THE FINANCIAL MARKET AND ECONOMY INVIETNAM FROM 2000TO2022 92

4.1.1 Overview of the financial market inVietnamfrom 2000to2022 92

4.1.1.1 Market size during the periodfrom2000to2022 92

4.1.2 Overview of Vietnamese economy from 2000to2022 96

4.1.2.1 Economic growth ofVietnamfrom 2000to2022 96

4.1.2.2 Inflation inVietnamduring the periodfrom2000to 2022 98

4.2 RESEARCHRESULTSFROMESM 99

4.2.1 The reaction of the market to theUS’sUMPannouncement 99

4.2.1.1 Abnormal average return ofthemarket 99

4.2.1.2 Cumulative average abnormal return ofthemarket 102

4.2.2 The reaction of different sectors to theUS’sUMPannouncement 104

4.2.2.1 Abnormal average return ofdifferentsectors 104

4.2.2.2 Cumulative average abnormal return ofdifferentsectors 106

4.2.3 Robustnesstest 110

4.2.4 Discussingresearch results 113

4.2.4.1 Similarities between thetwoperiods 113

4.2.4.2 Differences between thetwoperiods 114

4.3 RESEARCHRESULTSFROMSVAR 115

4.3.1 Correlation between variables 115

4.3.2 Datastatisticaldescription 121

4.3.3 Unit roottestresults 122

4.3.4 The optimal lag-lengthselectionresults 122

4.3.5 SVARmodelresults 123

4.3.5.1 Impulseresponseresults 123

4.3.5.2 Variancedecompositionresults 127

4.3.6 SVARresults for the GFC and duringpandemiccrisis 129

4.3.7 Robustnesstest 131

5 CHAPTER 5: CONCLUSIONS ANDPOLICYIMPLICATIONS 135

5.1 CONCLUSION 135

5.1.1 Researchquestion1:DoestheVietnamesefinancialmarketreacttotheUS’sUMP announcements in the global financial crisis and the COVID-19 pandemicperiod? 136

5.1.2 Research question 1: Does the real economy ofVietnamrespond to theUS’sUMPshocksintheglobalfinancialcrisisand theCOVID-19pandemicperiod?.137 5.1.3 Research Question 3: Do differences exist between the effects of theUS’sUMP on the Vietnamese financial market and real economy between the globalfinancial crisis and thepandemiccrisis? 138

5.1.3.1 The differences in thefinancialmarket 138

5.1.3.2 The differences inrealeconomy 139

5.2 RESEARCHCONTRIBUTIONS 140

5.3 POLICYIMPLICATIONS 142

5.3.1 Constructing and implementing unconventional monetary policies suitablefor the contextofVietnam 142

5.3.2 Developing the financial market to increase the attraction of foreigninvestmentflows 144

5.3.3 Monitoring theUS’smonetary policy and adjusting its policy to respond toglobaleconomicdevelopments 145

5.3.4 Focus on managing the potential risks of foreign capital flows and marketvolatility 146

5.3.5 Building resilience and promoting economic self-sufficiency in the face ofexternalshocks 147

5.3.6 Investors consider selecting investment opportunities in the context ofmonetarypolicyfluctuations 149

5.4 LIMITATIONSAND SUGGESTIONS FORFURTHERRESEARCH 150

6 LISTOFREFERENCCE i

7 APPENDIX xii

LIST OF TABLES

Table2.1: Unconventional monetary policy tools used by majorcentralbanks 25

Table2.2: The differences between CMPandUMP 36

Table2.3: Studies using the ESM relate to theUS’sUMP policy announcementsimpactingfinancial markets 59

Table2.4: Studies using theVARapproach relate to theUS’sUMP policyannouncements impacting financial markets and therealeconomy 63

Table3.1: Expected correlationsbetweenvariables 82

Table3.2: Event dates during the global financialcrisisperiod 84

Table3.3: Event dates during the COVID-19pandemicperiod 85

Table3.4: Description of variables and sourceofdata 87

Table4.1: The AAR of the market around theUS’sUMPeventdates 99

Table4.2: The CAAR of the market around theUS’sUMPeventdates 102

Table4.3: AAR of different sectors duringtheGFC 104

Table4.4: AAR of different sectors during theCOVID-19pandemic 105

Table4.5: CAAR of sectors during the globalfinancialcrisis 106

Table4.6: CAAR of sectors during theCOVID-19pandemic 107

Table4.7: Datastatisticaldescription 121

Table4.8: Unit RootTestResult(ADFtest) 122

Table4.9: Lag order for each model according toselectedcriteria 122

Table 4.10: Contribution of CBB shocks to the forecast variance decomposition of GDP 130

LIST OF FIGURES

Figure 1.1: Zero lower bound asWuand Xia (2016) measure and policy rate of the US

2Figure 1.2:VietnamKOFGlobalizationIndex 7

Figure 2.1: Monetary policytransmissionmechanism 21

Figure 2.2: Transmission channel ofQuantitativeEasing 31

Figure 2.3: International transmission mechanism of unconventional monetary policy 33Figure 2.4: Some frontier markets intheworld 40

Figure 2.5: Three level ofefficient market 42

Figure 2.6: Summarize therelatedresearch 54

Figure 3.1:Timelengths for window frames used in the eventstudymethod 69

Figure 4.1: The number of listed companies on the HOSE during the period from 2007to2022 92

Figure 4.2: The market capitalization during the period from 2000to2022 93

Figure 4.3: VNINDEX and the total trading volume during the period from 2000 to2022 94

Figure 4.4: VNINDEX and trading volume during the global financialcrisisperiod 95

Figure 4.5: VNINDEX and trading volume during theCOVID-19pandemic 96

Figure 4.6: GDP growth ofVietnamfrom 2000to2022 97

Figure 4.7: Inflation inVietnamfrom 2000to 2022 98

Figure 4.8: The AAR of the market around theUS’sUMPevent dates 101

Figure 4.9: CAAR of the market during the GFC period andCOVID-19period 103

Figure 4.10: CAAR of sectors during the GFC andCOVID-19periods 109

Figure 4.11: CAAR of the market during the GFC period and COVID-19 period by themarket-adjustedmodel 111

Figure 4.12: CAAR of sectors during the GFC and COVID-19 periods by the market-adjustedmodel 111

Figure 4.13: Correlation between total assets of FED and real GDP growth in Vietnam .116

Figure 4.14: Correlation between total assets of FED and inflationinVietnam 117

Figure 4.15: Correlation between shadow short rate of the US and real GDP growth inVietnam 117

Figure 4.16: Correlation between the shadow short rate of the US and inflation

inVietnam 118

Figure 4.17: Correlation between the VIX index and real GDP growthinVietnam 119

Figure 4.18: Correlation between VIX index and inflationinVietnam 119

Figure 4.19: Correlation between capital flow and real GDP growthinVietnam 120

Figure 4.20: Correlation between capital flow and inflationinVietnam 121

Figure 4.21: Responses of GDP and CPI to theUS’sUMPshock 123

Figure 4.22: Responses of GDP and CPI to theVIXshocks 124

Figure 4.23: Responses of GDP and CPI to theCFshock 124

Figure 4.24: Responses of equity returns to theCFshocks 125

Figure 4.25: Responses of GDP and CPI to theSPshocks 125

Figure 4.26: Responses of GDP and CPI to the FOREX andIRRshocks 126

Figure 4.27: Responses of IRR to theUS’sUMPshocks 126

Figure 4.28: Contribution of theUS’sUMP shocks to the forecast variancedecompositionofGDP 128

Figure 4.29: Contribution of theUS’sUMP shocks to the forecast variancedecompositionof CPI 129

Figure 4.30: The response of GDP to theUS’sUMP shock in the period of GFC andduring thepandemiccrisis 129

Figure 4.31: The response of CPI to theUS’sUMP shock in the period of GFC andduring thepandemiccrisis 130

Figure 4.32: Responses of GDP to the SSR, VIX andCFshocks 132

Figure 4.33: Responses of CPI to the SSR, VIX andCF shocks 132

During the global financial crisis of 2007 – 2008 and the COVID-19 pandemic,conventional monetary policies were ineffective as the policy rates of central banksapproached zero bounds In this context, central banks of developed countries haveresorted to unconventional monetary policies (UMP) with tools such as quantitativeeasing, forward guidance, etc This study examines the impact of the US’s UMP on thefinancial market and the real economy of Vietnam from 2007 to 2022 As a small, opencountry that is part of the frontier market group and is increasingly integrating with theworld, 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 theFED's official UMP announcements In addition, with theSVARmodel, the studyexamines the impact of theUS’sUMP,represented by theFED’scentral bank balancesheet(CBB)indicator,ontherealeconomyofVietnam,measuredbytwovariables:GDP growth andinflation The research results show that the Vietnamese stock market positively reacts to theinformation about theUS’sUMP,as represented by two positive indicators, AAR andCAAR, which are positive with different time windows in different crisis periods.However, the results also show that during the GFC period, the market reactedimmediately when the information was announced, while during the COVID-19pandemicperiod,themarketreactedearlier.Besides,theincreaseinthemarketduringthe COVID-19periodwasmoresignificantthanthatoftheGFCperiod.Thisdifferencemay be due to UMP'scontext, scale, and implementation time in the two periods The resultsofindividualsectorsalsopositivelyreacttotheinformationoftheUS’sUMP.Theresults oftheSVARmodel with lag eight also show that an expansionary monetary policy byunconventionalmeasuresleadstoanincreaseinVietnam’soutput,andpriceindexeshave

increasedsignificantly.Incontrast,onlytheGDPresponsehasincreasedsignificantlyfor the ninemonths However, the response of GDP to a change in CBB is more robust thanthatoftheCPI.Furthermore,riskaversionhasaninfluenceonGDPandCPIinVietnam A surge inthe VIX index signals increased risk aversion, leading to a quick drop in GDP following theshock, reaching its peak after five months The results indicated that the impact of the shockcaused by the Fed's balance sheet expansion on the Vietnamese realeconomyinGFCwasgenerallytwotimeshigherthanduringtheCOVID-19crisis.The

(iv) building resilience and promoting economic self-sufficiency in the face of externalshocks.Finally,the study also proposes recommendations for investors about investmentopportunities in the Vietnamese stock market before the announcements related totheUS’smonetarypolicy

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

dịchCOVID-19, chính sách tiền tệ truyền (CSTT) thống không thể phát huy hiệu quả khi lãi suất điều hành của các Ngânhàng Trung ương (NHTW) về cận không Trong bối cảnh đó, các NHTW của các quốc gia phát triển đã sử

cụnhưnớilỏngđịnhlượng,địnhhướngchínhsách,lãisuấtâmv.v.Nghiêncứunàynhằm mục tiêu xemxét ảnh hưởng của CSTT phi truyền thống của Mỹ tác động đến thị trường tài chính và nền kinh

tế thực củaViệtNam trong giai đoạn từ 2007 đến 2022 Với vị thế là một quốc gia nhỏ,

mở của nằm trong nhóm thị trường cận biên và ngày càng gia tăngsựhộinhậpvớithếgiới,ViệtNamphầnnàochịuảnhhưởngtrướccácchínhsáchcủacác quốc gia trênthế giới, đặc biệt làMỹ

Phươngphápnghiêncứusựkiệnđượcsửdụngđểxemxétnhữngphảnứngtứcthì của thịtrường chứng khoán trước những thông báo chính thức của Cục dự trữ liên bangMỹ(Fed)vềCSTTphi truyềnthống(UMP).Ngoàira,vớimôhìnhvéctơtựhồiquycấutrúc(SVAR),nghiên cứu xem xét ảnh hưởng của CSTT phi truyền thống của Mỹ, vớiđạidiệnlàchỉtiêubảngcânđốikếtoáncủaFed(CBB),tớinềnkinhtếthựcViệtNam,được

đolườngbởi2biếnlàtăngtrưởngtổngsảnphẩmquốcnội(GDP)vàchỉsốgiátiêudùng (CPI) Kếtquả nghiên cứu cho thấy thị trường chứng khoánViệtNam có phản ứng tích cực trước cácthông tin về CSTT phi truyền thống của Mỹ, thể hiện qua hai chỉ tiêu lợi nhuận bấtthường trung bình (AAR) và lợi nhuận trung bình tích luỹ (CAAR) dương với các khungcửa sổ thời gian khác nhau trong các giai đoạn khủng hoảng.Tuynhiên, kếtquảcũngchothấytronggiaiđoạnkhủnghoảngtàichínhtoàncầu,thịtrườngchứngkhoán phản ứng ngay khithông tin công bố, trong giai đoạn đại dịch COVID-19, thị trường cóphảnứngsớmhơn.Ngoàira,phảnứngcủathịtrườngtronggiaiđoạnCOVID-19lớnhơn so với giaiđoạn khủng hoảng tài chính toàn cầu Sự khác biệt này do bối cảnh, quy mô và thời gian thựchiện CSTT phi truyền thống của Mỹ trong hai giai đoạn Kết quả củacácngànhriênglẻcũngcósựphảnứngtíchcựctrướccácthôngtincủaCSTTphitruyền

thốngcủaMỹ.KếtquảcủamôhìnhSVARcũngchothấyCSTTmởrộngthôngquacông cụ phitruyền thống dẫn đến GDP và CPI ởViệtNam đã tăng đáng kể, tuy nhiên chỉ cóphảnứngcủaGDPđãtăngđángkểtrong9thánglàcóýnghĩathốngkêvàphảnứngcủa GDP đối với

sự thay đổi trong CBB mạnh hơn so với CPI Hơn nữa, chỉ số đo lương rủiroVIXcóảnhhưởngđếnGDPvàCPIởViệtNam.MộtsựtănglêntrongchỉsốVIXcho

thấy sự tăng lên của rủi ro, dẫn đến việc giảm nhanh chóng của GDP sau cú sốc, đạtmứccao nhất sau năm tháng Kết quả cho thấy tác động của cú sốc do sự mở rộng của bảngcânđốikếtoáncủaFedlênnềnkinhtếthựccủaViệtNamtronggiaiđoạnkhủnghoảntài

chínhtoàncầulàgấpđôisovớitrongcuộckhủnghoảngCOVID-19.Kếtquảnghiêncứu được kiểmtra tính vững với cách đo lường lợi nhuận bất thường và lợi nhuận bất thường tích lũy bằngcách sử sụng một mô hình khác và thay thế CBB với biến lãi suất ngắn hạn tính lạitheo(Wuvà 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 cảnhViệtNam, (ii) tăng cường phát triển thị trườngtài chính để thu hút dòng vốn nước ngoài, (iii) theo dõi chính CSTT của các nước pháttriển, đặc biệt là Mỹ để điều chỉnh CSTT trong nước một cách chủ động, (iv) xây dựngkhả năng phòng vệ và khả năng tự chủ của nền kinh tế trướccáccúsốctừbênngoài.Cuốicùng,nghiêncứucũngđềxuấtnhữngkhuyếnnghịchonhàđầu tư về cơ hộiđầu tư trên thị trường chứng khoánViệtNam trước những thông tin công bố liên quan đếnCSTT củaMỹ

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

hồiquy cấu trúc, thị trường tài chính, nền kinh tế thực.

In2008,duringtheglobalfinancialcrisis(GFC),andagainin2020,theFederalfunds rate reachedzero due to economic collapse caused by epidemics, requiring additional stimulus measures Howcan the Fed and other central banks support the economy when short-term interest rates still are nearzero?Toaddress the limitations imposed by the zero lower bound on short-term interestrates, the United States (US) and other advanced economies (AEs) have also introduced

policyorunconventionalmonetarypolicy(UMP).AccordingtoBernanke(2022),thecentral bank loweredits 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 inFigure 1.1), economists refer

to this as the "zero lower bound," signifying thatthe 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 ratesfurther,butitalsobecomeschallengingtoachievetheirinflationgoals.Thisglobalcrisishas

employment and stable prices in the United States

Zero lower bound

(LSAP)operationshassignificantlyexpandedtheFed'sbalancesheetandaffectedlong-term bond yields.During the 2007–2009 financial crisis and the recent pandemic, Fed and numerous other central banksrelied extensively on these tools (Bernanke, 2022) Another essential tool is forward guidance, designed

to influence financial conditions by shaping market expectations of future monetarypolicy

Figure1.1:ZerolowerboundasWuandXia(2016)measureandpolicyrateoftheUS

Source: IFS – IMF data and Wu and Xia (2016) shadowrate

The widespread adoption of numerous UMPs during the GFC brought aboutsignificant transformations in both financial markets and the real economy, affecting bothadvancede c o n o m i e s a n d t h e r e s t o f t h e w o r l d , p a r t i c u l a r l y e m e r g i n g e c o n

(EMEs)anddevelopingcountries.ThedeploymentofUMPtoolsinAEsreducedbondyields and increasedreal GDP, stock prices, and the Consumer Price Index (CPI) Additionally, it spurred portfolio flows intoother countries, resulting in heightened real output growth and positive responses from thefinancialmarkets.

The instability in global finance has persisted since the GFC The outbreak of theCOVID-19 pandemic in late 2019 delivered a severe shock to economies worldwide Mostnations resorted to lockdowns and isolation measures to have the pandemic's spread,resulting in economic stagnation Consequently, global GDP experienced a significantdecline in 2019, approximately 3%, and is expected to continue falling sharply in thesubsequentyears.Incontrast,duringthe2009financialcrisis,theglobalGDPlosswasonly 0.1%(Gopinath, 2020) Economies faced a pronounced and enduring increase in unemployment andpublic debt, and many businesses closed or went bankrupt To mitigate the adverse economicimpacts of COVID-19, central banks swiftly implemented a range of robust policies Thesemeasures 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 policymanagement 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 measurestosupport the economy in the face of new challenges In March 2020, there were two special sessions of the Federal Open MarketCommittee (FOMC) intending to bolster economic activity On March 3, 2020, Fed lowered the Federal funds rate, initially from a range

of 1.5%to1.75%toarangeof1%to1.25%.Later,onMarch16,therangewasfurtherreduced to 0%-0.25%(Tepper & Adams, 2024) In August 2020, the Fed announced significant changes to its monetarypolicy-making framework process initiated before the pandemic These changes were designed toenhance the potency of monetary policy in an environmentwhereinterestrateswerealreadylow.Insubsequentmonths,theFedprovidedfurtherclarity by explicitlystating its commitment to keeping interest rates low for as long as necessary Concurrently, concernsabout the virus triggered the worst week in US financial markets sincethe2007–2009financialcrisis,servingasawarningsignalfortheeconomy(Bernanke, 2022) This is only thesecond time this interest rate has reached the zero lower bound Inthisc o n t e x t , i t i s e s s e n t i a l t o e x a m i n e h o w t h i s U M P a f f e c t s b o t h t h e r e a l e c o n o

m y a n d

financialmarketsinAEsandothercountries.Thisanalysiscanprovidevaluableinsightsand implicationsfor dealing with similar situations in the future This analysis is crucial considering the global healthcrisis caused by COVID-19, which has posed unprecedented challenges to economiesworldwide.

The United States' new monetary policy operations always serve as necessarysignalsfor central banks in developing countries to adjust their economic policy implementations Gai and Tong (2022) examine theinternational impact of the information on US’smonetary policy When Fed tightens monetary policy, it reveals a tightenedmonetary stance and optimism about the economy, raising global output and asset prices Monetary announcements from the UScan 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' realeconomies and financial markets Identifying which countries are most affected by these US policy decisions isparticularlyinteresting

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 epidemicand boost its economy These measures include providing social security support packages,engaging in large-scale government asset purchases, conducting widespread overnight andtermrepotransactions,andreducingdiscountlendinginterestrates.Thecapitalinflowsfrom implementingUMP 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

suchastheportfoliorebalancingchannel,theinterestratechannel,theexchangeratechannel, the asset pricechannel, and the credit channel Developing countries are particularlyvulnerabletoeconomicuncertainty,especiallyinthefaceofunexpectedchangesinmonetary policy inAEs

AsignificantnumberofempiricalstudieshaveanalyzedthedomesticimpactofUMP in advancedeconomies and its international spillover effects on the rest of the world Many of these studies haveprimarily focused on examining the response of financial markets within AEs such as (Breedon etal., 2012; Eksi & Tas, 2017; Guerello, 2018; Haitsma et al.,2016;Putniņš,2022;Rahman&Serletis,2023;Saiki&Frost,2014;Weale&Wieladek,

2022),interestrate(Bauer&Neely,2014;Baumeister&Benati,2010;Breedonetal.,2012; Jäger &Grigoriadis, 2017)… Another focus on the impact of UMP on the macro economyandeconomicactivityinAEs(Fratzscheretal.,2016;Gambacortaetal.,2014;Jawadietal., 2017;Meinusch & Tillmann, 2016) These findings make valuable contributions to theempiricalevidence.However,theyhaveyettoaddressthisissueinthecontextofapandemic crisis, nor havethey compared the differences between implementing UMP tools to manage a GFC crisis versus apandemic crisis in various advanced economies, particularly thosenationswithsignificantinfluenceonthedevelopmentofothereconomies,suchastheUnited 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 moreattention to the financial market in emerging economies, such as interest rates, asset prices,andexchangerates….(Anayaetal.,2017;Apostolou&Beirne,2019;Bowmanetal.,2015; Chen et al.,2014; Chen et al., 2016; Eser & Schwaab, 2016; Gupta & Marfatia, 2018; Tillmann, 2016; UzAkdogan, 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 portfolioinflows, heightened output growth, asset price surges, and exchange rate appreciation, theirfocus has been mainly on EMEs when examining the international spillover effects ofadvanced economies’ UMP However, it is essential to recognize that, beyond EMEs, otherregions warrant investigation as well Some studies on related topics have underscored thecritical role played by EMEs and frontier markets, particularly in the context of portfolioflows and the stock market Moreover, the dynamics of international monetary policyspillovers are intricately linked with portfolio rebalancing, asset price channels, and variousother channels within the monetary transmission mechanism

Asian economies are also affected by the GFC and the UMP of advancedeconomies,especially the United States, in different ways (Punzi & Chantapacdepong, 2019) Some studies find that UMP in AEs haspositive spillover effects on Asian and Pacific countries,suchascapitalinflows,stockmarketgrowth,currencyappreciation,andproductionincrease such as(Tran & Pham, 2020) Other studies find that these effects are minor or negligible,andthattherearedifferencesamongAsianandPacificcountries(Rafiq,2015).According

to Outlook Frontier Markets (2021), in 2020, the return on equity of frontier markets is a67% premium to developed markets Frontier markets, offering high returns and lowcorrelationswithothermarkets,areappealingtoinvestorsdespitetheirhigherrisksandlower liquidity Theyhave grown rapidly, becoming a popular investment class with lower debt and higher foreign-exchangereserves relative to their GDP With optimistic anticipation,manybelievethesemarkets,giventheirgrowthrates,willbecomeeconomicsuccessstories Researchshows that investment efficiency in frontier markets surpasses some developing markets.Sukumaran, Gupta, and Jithendranathan (2015) highlight substantial benefits for Australianinvestors diversifying into these markets, with US investors reaping even greater rewards.Furthermore, market shocks from developed countries impact frontier markets, particularly duringcrises (Samarakoon, 2011) Given these considerations, frontier markets present a compellingoption for international investors, complementing investments inemergingmarketeconomies.Theimportanceoffrontiermarketsisunderscored,particularly consideringmonetary policy adjustments during the COVID-19 pandemic, which may necessitate areevaluation of investment strategies This could involve a potential pivot towards investments insafe-haven assets and economies, or a focus on regions that yield higherreturns.

ThisstudywillrevisitthespillovereffectsofUMP,focusingontheUnitedStatesand frontiermarket 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 onthe Asian region due to its vibrant economic growth and its statusasasignificanteconomiccenter.Theseeconomiesaresimilarintheirsusceptibilitytomonetary policyuncertainties in advanced economies, a result of historical regional financial crisesandtheirongoingtransitiontowardsfinancialliberalizationandeconomicglobalization.The studyexcludes developed Asian countries like Japan and newly industrialized countrieslike Taiwan, Korea, andSingapore The remaining Asian countries share similar levels of development and characteristics such as geography, economy,anddemographics

Financial Globalisation Trade Globalisation

Figure 1.2: Vietnam KOF Globalization Index

Source: KOF Swiss EconomicInstitute

Besides,recentstudiesfoundstrongevidencethatmostcountriesareequallyaffected byeconomic policy uncertainty in AEs (Tang et al., 2021), primarily monetary policies Feldkircher

et al., (2021) Ngô and Nguyễn (2020) study the use of UMP in Vietnam and other countriesduring 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, anduncertainty about the solvency of the financial market led to increasing counterparty risk.Furthermore, with the collapse of Lehman Brothers in September 2008, the financial crisisdeveloped into a global crisis, the use of UMP also posted significant challenges to economies,especially after experiencing prolonged economic crisis and recession These difficult problemsresurfaced once again during the COVID-19 pandemic period Nguyễn and Ngô (2021) show thatthe Federal Reserve’s balance sheet shock affects Vietnam through two main channels: portfoliorebalancing channelandassetpricechannel.AshockintheUS’sUMP,manifestedthroughtheexpansion ofthe central bank's balance sheet, will significantly increase capital flows into Vietnam.Furthermore,whenconsideringtheassetpricechannel,whenashockrelatedtoUMPeasing occursthrough the US central bank's QE actions, stock prices in Vietnam initially tend to decreaseimmediately after the shock until the second half of the second quarter, afterwhich stock prices rebound andhave statistical significance until the third quarter after the shock occurs However, these studies only evaluate the use of UMP in the COVID-19 pandemicandt h e t r a n s m i s s i o n c h a n n e l s t o V i e t n a m , w i t h o u t a n a l y z i n g t h e s p e c i f i c i

m p a c t o n t h e

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’sUMP on high lag level variables such as GDP and CPI In particular, a few studies havecompared the difference in the impact of UMP in the two periods GFC and COVID-19

During the global financial crisis, the Vietnamese stock market experienced a sharpdecline, 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-19pandemic when the VNINDEX, starting at 991.46 points on January 22, 2020, dropped to659.21pointsonMarch24,2020(adecreaseof33.51%)2.Notonlywasthefinancialmarket affected, butduring 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, withthe outbreak of the COVID-19 pandemic, Vietnam's GDP growthin 2020 decreased to only 2.9% and further

to 2.6% in20213

The foregoing proves that the global financial crisis and the COVID-19 pandemichave had adverse effects on financial markets and economies worldwide Vietnam, as adeveloping country and a member of the frontier financial markets group, has not beenimmune to the impacts of these crises Developed economies have implemented variouseconomic support policies, including US’s UMP to mitigate the negative consequences ofthesecrises.Thespillovereffectsofthesepolicieshavealsohadsomewhatpositiveimpacts onVietnam's financial market and real economy, given Vietnam's deep integration into theinternationalmarket

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

2 Data from HOSE

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

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

1.2 RESEARCHOBJECTIVES

The main objective of this study is to analyze the international spillover effects of theunconventionalmonetarypolicyoftheUnitedStatesontheVietnamesefinancialmarketand the realeconomy Regarding the financial market in Vietnam, the primary representative isthestockmarket.Therealeconomydealswithproducing,purchasing,andcirculatinggoods andservices within aneconomy

Specific objectives

First,this study examines how the Vietnamese financial market reacts to

theUS’sUMP announcements during the GFC and the COVID-19 pandemic UMPs arealternative

measurestostimulatetheeconomywhenconventionaltoolsareineffective.TheUS’sUMP affects notonly its own economy and financial market, which are the largest in the world, but also many othercountries through spillover effects This research explores how these effects influence theVietnamese financialmarket

Second,thisresearchscrutinizestheresponseofVietnam’srealeconomytotheshocks

oftheUS’sUMPduringtheglobalfinancialcrisisandtheCOVID-19pandemic.WhileUMP

announcementsfromtheUScaninstantaneouslyaffectthefinancialmarket,macroeconomic variables,particularly GDP growth and inflation, exhibit delayed responses Analogous to the financial market’sreaction, the implementation of UMP to bolster the US economy during crises generates spillovereffects on other global economies, including Vietnam, via multiple transmissionchannels

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 realeconomy during two distinct periods of crisis: the global financial crisis and the COVID-19pandemic

The US resorted to the use of UMP as a response mechanism during both crises.However, the contexts of the GFC and the COVID-19 pandemic differed significantly TheGFC was primarily a financial crisis, triggered by the subprime mortgage crisis in the US,whichledtoaglobalbankingcrisis.Ontheotherhand,theCOVID-19pandemicwasahealth crisis that resulted

in an unprecedented global economic shutdown These differences in the nature of the crises led tovariations in the timing, scale, and specific measures of UMP implementation by the Federal Reserve.These variations could result in distinct impacts of theUS’sUMPo n Vietnam’sfinancial market andrealeconomy.The study aims to analyze

these impacts in detail, considering factors such as changes in asset prices, exchange rates,andcapitalflows,andchangesinGDPgrowthandinflationintherealeconomy.Thefindings of this researchcould provide valuable insights for policymakers, investors, and researchers interested in the

international spillover effects ofUMP.

1.3 RESEARCHQUESTIONS

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

Question1:DoestheVietnamesefinancialmarketreacttotheUS’sUMPannouncementsin the global

financial crisis and the COVID-19 pandemicperiod?

Question 2:Does the real economy of Vietnam respond to the US’s UMP shocks in the

global financial crisis and the COVID-19 pandemic period?

Question3:DodifferencesexistintheeffectsoftheUS’sUMPontheVietnamesefinancial market and real

economy between the global financial crisis and the pandemiccrisis?

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

1.4 THESCOPE OF THISSTUDY

This study will investigate how theUS’sUMP affects the Vietnamese stock market’simmediate reaction to official UMP announcements and the real economy ofVietnamfrom2007to2022.Emphasiswillbeplacedontwosignificantperiods:theGFCandtheCOVID-

19pandemic

First,thepurposeofthisstudyistoinvestigatethespillovereffectsofUMPonVietnam, a country that

has the characteristics of a frontier financial market and an open, smalleconomy.These features makeVietnam a suitable case for analyzing how UMP actions in a major economy can influencethe economic and financial conditions in a smaller and less developed economy This studyconcentrates on the UMP tools that the United States has employed since the GFC Thestudy does not include the UMP tools of other advanced economies, such as the Euro area,Japan, and the United Kingdom, in theanalysis

Second,thechoiceofthestudyperiodisessentialtoensurethevalidityandreliabilityof

thestatisticalmodel.ThisresearchwillexaminethespillovereffectsoftheUS’sUMPon

Vietnam’seconomy from 2007 to 2022 This period covers the whole span of the USimplementationUMP,which started in response to the GFC and the COVID-19 pandemiccrisis.ThisperiodalsoallowsforacomprehensiveanalysisofhowtheUS’sUMPeffectsthe economic andfinancial conditions in Vietnam, as well as the role of major events, such as the GFC and theCOVID-19 pandemic crisis, in the international transmission of the U.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 allmarkets and different sectors5, following the announcement of the US’s UMPimplementation The analysis will specifically focus on listed stocks on the HOSE, ratherthan encompassing the entirety of Vietnam's financial markets This emphasis is driven byseveral considerations:

(i) For the Vietnamese stock market, companies can be listed and if they meet therequirements according to the regulations The stocks of these companies can be listed ontwoexchanges,HOSEorHNX.Duetoitsformationanddevelopmentprocess,aswellasits 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 berepresented the Vietnamese stock market, all companies listed on HOSE can also representthe listed companies on the Vietnamese stock market In addition, with theeventstudymethod,whendeterminingabnormalreturns(AR)basedonthemarketandrisk- adjustedmodel or the market-adjusted model, if combining all stocks in both stockexchanges,itwillnotbeappropriatewhencalculatingARbecausethefluctuationmarginon these twostock exchanges is different Specifically, the fluctuation margin of HOSE is +/- 7% while thefluctuation 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 bondmarket

5 The study will analyze the stock price reactions of all industries listed on HOSE, classified according to theGICSindustryclassificationstandard.ThedetailedindustryclassificationispresentedinAppendix 1 6 According

to data published by the State Securities Commission ofVietnam

(iii) in the case of the foreign exchange market, the exchange rate is managed by thecentralbank,makingitchallengingtoobserveimmediatefluctuationsinresponsetotheUS’sUMPevents.

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

price index and output, to theUS’sUMP shocks The real economy is concerned withcreating, purchasing, and moving commodities and services within aneconomy.It contrastswith the financial economy, which focuses only on exchanging money and other financialassets that reflect ownership of or claims to ownership of goods and services from therealeconomy.Sincetheterm"realeconomy"appliestoallrealornon-financialcomponents,real variablescan be used to model the realeconomy

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

1.5 RESEARCH METHODOLOGIES ANDDATA

1.5.1 Researchmethodology

1.5.1.1 Eventstudy method

Theeventstudymethod(ESM)isastatisticalandeconometrictechniquethatanalyzes the effects ofspecific 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

Neely(2015),onemustexamineassetpricechangesasannouncementsorothernewschange marketexpectations to evaluate the effects of theUMP.As a result, the technique may be applied toexamine occurrences instantly ESM is current in addition to having quick accesstoawealthofdatasinceassetvalues,includingstockprices,areprospective.Forthatreason,

thisresearchemploystheESMtoanalyzetheeffectsoftheUS’sUMPannouncementonthe Vietnamstock 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 willanswer the first research question In addition, by comparing the research results in two periods, itwill also answer part of the third research question, the difference in the effect of theUS’sUMP onthe Vietnamese financial market in two crisis periods

1.5.1.2 Structuralvector autoregressionmodel

The structural vector autoregression(SVAR)model to study the effects oftheUS’sUMP 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 variousimplementationsoftheUS’sUMPsincetheGFCandtheonsetofthepandemiccrisis.SVARhaslongbeenregardedasacornerstoneinempiricalmacroeconomics,enablingthestudyof expected responses ofmodel variables to one-time structural shocks, such as policy actionsorunexpectedeconomicchanges(Kilian,2013).TheessenceofSVARistoobtainstructural parametersand shocks based on observing the reduced formVARdeveloped by (Sims, 1980).SVARallowsfor as many types of shocks as time series variables in the set byassumingthatobservablevariablesareendogenous.Incontrast,shocksaretheimpulsesthat movethesystem

Consequently, theSVARmodel will be used in this research to investigate theinternational spillover effects of theUS’sUMP on the Vietnamese economy from 2007 to

2022 Then, this study will use another variable representing theUS’sUMP to replace thepreviousonetocheckitsrobustness.Theseresultswillanswerthesecondresearchquestion

Bycomparingtheresearchresultsintwoperiods,thestudywillanswertheremainingofthe thirdresearch question, the differences in the effects of theUS’sUMP on the real economyofVietnamin two crisisperiods

1.5.2 Researchdata

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 Thisdata has been sourced from the Ho Chi Minh City Stock Exchange (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,thedataproxiesfortheUS’sUMPandinternationaltransmissionchannelsand

Vietnamese macroeconomic data spanning the period from 2007 to 2022 The monthlydata

on the total assets of the Federal Reserve's balance sheets and the VIX index were sourcedfrom the Federal Reserve Bank and the Chicago Board Options Exchange (CBOE),respectively Additionally, data on foreign portfolio investment flows toVietnamwereobtainedfromtheIMF.ForVietnam'smonthlymacroeconomicindicators,includingmarket

interestrates,thenominalexchangerateofUSD/VND,Vietnam'soutput,andinflation,data from 2007

to 2022 were collected from theIMF

Finally, in the section assessing the over view of the Vietnamese financial market in

theperiodfrom2000to2022,inadditiontothedailystockindexdataintroducedabove,the study alsouses data on the number of listed companies, market capitalization value, and trading volumefrom HOSE to analyze the overview of the Vietnamese financial market which represented bythe stockmarket

1.6 RESEARCHCONTRIBUTIONS

The main contribution of a study that examines the effects of the US’s UMP on theVietnamese financial market and the real economy In detail, there are four contributions ofthis thesis:

First, this research stands as one of the limited scholarly works that delve into the

exploration of the influence exerted by the UMP of the United States on a frontier market,specifically Vietnam Frontier markets, such as Vietnam, are less mature than emergingmarketsandoftenshowrapideconomicgrowth,makingthemaninterestingareaofstudyin thecontext of international monetary policy spillover effects This research aims to fill this gap

by providing an in-depth analysis of theUMP’simpact onVietnam’sfinancial marketandrealeconomy.Furthermore,thefindingsofthisstudycouldhavesignificantimplications for thedevelopment of effective monetary policies and investment strategies in frontier markets Therefore,this research not only contributes to academic knowledge but also has practical relevance for economicpolicy and investmentdecision-making

Second, this research employs a multifaceted approach to examine the effects of the

US’s UMP by utilizing a range of proxies These proxies include UMP announcements,which provide insights into the policy intentions of the Fed, the total assets of the Fed’sbalance sheet, which reflect the scale of the UMP; and the shadow short rate, which is ameasure that captures the stance of monetary policy when nominal interest rates are at thezero lower bound In addition to these proxies, the study also conducts robustness tests onthe results Robustness tests are crucial in empirical research as they check the reliability of

the results under different assumptions or methodologies By conducting these tests, thestudy ensures the validity and reliability of its findings.

Through this comprehensive and rigorous approach, the study provides an in-depthunderstanding of the impact of the US’s UMP on Vietnam It sheds light on how changes inUMP in the world’s largest economy can have spillover effects on a frontier market likeVietnam This contributes to the broader understanding of international monetary policytransmission and can inform policy decisions in both developed and frontier markets

Third,this research makes a significant contribution to the existing

bodyofliteraturebyprovidingacomparativeanalysisofthepotentialdifferencesintheeffectsoftheUS’sUMPduringtwodistinctperiodsofeconomiccrisis:theGFCandtheCOVID-

19pandemic.TheUMP,which was employed by the Fed during both crises as

ar e s p o n s e mechanism

However,thenatureofthesecriseswasfundamentallydifferent-19pandemicwasahealthcrisisthatledtoaneconomicdownturn These differences in the

theGFCwasprimarilyafinancialcrisis,whiletheCOVID-nature and context of the crises couldpotentiallyl e a d tovariationsi n t h e e f f e c t s o f t h e UMP.B y a n a l y z i n g t h e s e v a r i a t i

o n s , t h i s s t u d y p r o v i d e s empiricalevidenceonhowtheimpactsofUMPcandifferacr

ossdifferentcrisiscontexts.Furthermore, the findings of this research could have

implicationsforotherc o u n t r i e s , particularlythosewitheconomiesthatareintricatelylinkedtotheUSeconomy.Thus,thisresearchhasbothacademicandpracticalrelevance,contributingtotheliteratureoninternationalmonetarypolicytransmissionandinformingpolicydecisionsintherealwo

rld.Lastly, the research reveals that both the financial market and the

reale c o n o m y i n Vietnamexhibited a positive response to the shocks induced bytheUS’sUMP,particularlyduring the GFC and COVID-19 pandemic Furthermore, the studyidentifiest h e risk-takingand portfolio rebalancing channels as critical conduits for the

transmission ofUMP’sspillover effects

This chapter presents an overview of the theoretical framework of unconventionalmonetarypolicy, including its instruments and international transmission channels It also reviews relevant literature on thetopic.

Chapter 3: Methodology and Data

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

Chapter 4: Research Results

Thischapterpresentstheresultsobtainedfromthe eventstudymethod(ESM)andstructural vectorautoregression (SVAR) It analyzes the research findings to elucidate the impact of the US’sUMP on the Vietnamese financial market and the realeconomy

Chapter 5: Conclusions and policy implications

Thelastchapteroffersconclusions,researchcontributions,andpolicyimplicationsbasedon

theresearchfindings.Italsooutlinesthestudy'slimitationsandsuggestsdirectionsforfuture research

This chapter introduces the research topic, which examines the impact of the US’sUMP on the Vietnamese financial market and the real economy The chapter begins byproviding an overview of how central banks use short-term interest rates as their primarypolicy tool and how conventional monetary policy (CMP) instruments have limitations instimulating the economy during crises The chapter emphasizes the importance ofunderstanding the spillover effects of UMP on developing and frontier markets, such asVietnam.TheresearchobjectivesaretoanalyzetheeffectoftheUS’sUMPonVietnamand to identifypotential differences in response during the global financial crisis (GFC) and the COVID-19pandemic The scope of the study is outlined, focusing on the period from 2007 to 2022, whichcovers the US implementation UMP during the GFC and the COVID-19 pandemic The chapterconcludes by describing the structure of the entire thesis, whichincludestheoreticalframeworks,literaturereview,researchresults,andpolicyimplications

"monetary actions taken by a government to control the amount of money in an economyand its availability, for example, by changing the interest rate.”

Meanwhile, Federal Reserve (2021) defines monetary policy refers to the actions ofcentral banks to achieve macroeconomic policy objectives such as price stability, fullemployment, and stable economic growth Its main policy tools are the target for thefederalfunds rate (the rate that banks charge each other for short-term loans), a key short-term interest rate Bank of England (2020)

actionthatacountry’scentralbankorgovernmentcantaketoinfluencehowmuchmoneyis

intheeconomyandhowmuchitcoststoborrow.EuropeanCentralBank(2021)alsodefines

‘monetarypolicy’asthedecisionstakenbycentralbankstoinfluencethecostandavailability of money inaneconomy

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

2.1.1.2 Conventional monetary policytools

Mishkin(2022)indicatedthat(i)openmarketoperations,(ii)discountlending,and(iii) reserve requirements are the three monetary policy instruments used by the FederalReserve to control the money supply and interest rates.Together,these three instruments -open market operations, discount lending, and reserve requirements - form the backbone ofwhat is commonly referred to as classic or conventional monetary policy tools They arethe

primary means by which the Federal Reserve manages the money supply and interest rates,thereby influencing economic activity.

a Open marketoperations

An open market operation is a monetary policy instrument that central banks use tomanage and control the amount of money in circulation This is achieved through thepurchase 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 purchasethe securities goes into the banking system, thereby increasing the number of reserves andbase 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, itessentially takes money out of the economy The money received from the sale of thesecurities is removed from the banking system, leading to a decrease in reserves and basemoney This reduction in the money supply has the effect of increasing short-term interestrates, making borrowing more expensive and discouraging excessive spending andinvestment

According to Mishkin (2022), open market operations, the principal drivers of theprimary causes of fluctuations in the money supply, are fluctuations in interest rates and themonetary base, which were the most significant conventional monetary policy tools beforethe global financial crisis There are two types of open market operations: defensive openmarket operations and dynamic open market operations Defensive open market operationsseektooffsetchangesinothervariablesthataffectreservesandthe monetarybase.Thegoal ofdynamic, open market operations is to change the number of reserves and the monetary base

Insummary,openmarketoperationsareacrucialtoolforcentralbankstoregulatethe moneysupply and control interest rates, thereby maintaining economic stability and promoting sustainableeconomicgrowth

b Discountlending

The discount window is the location where the central banks can provide reserves tobanks—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 commercialbanks Understanding how the discount window operates can provide valuable insights intothe ways in which a central bank can influence the volume of borrowed reserves within thebanking system.

Primary credit is the most significant form of discount lending in the context ofmonetarypolicy.Itisastandinglendingfacilitythatallowsfinanciallystablebankstoborrow from thecentralbank’sprimary credit facility These loans are typically of extremely shortduration,oftenjustovernight.Thisfacilityisdesignedtoprovidebankswithareliablesource

ofliquidity,enablingthemtomeettheirshort-termfundingneedsandmaintaintheirday-to- dayoperations (Mishkin,2022)

Secondary credit is given to banks in financial trouble with major liquidityproblems.Seasonalcreditisofferedtomeettheneedsofseverallocalbanksinvacationandagricultural

areaswithseasonaldeposits.Theseasonalcreditinterestrateisdeterminedbyaveragingthe federalfunds rate and certificate of deposit rates (Mishkin,2022)

c Reserverequirements

Banks maintain accounts at the central bank, where they hold their deposits Thesedeposits,alsoknownasreserves,playacrucialroleinthebankingsystemandaresubjectto regulationsset by the centralbank

The total reserves held by a bank are divided into two distinct categories The firstcategory is the required reserves, which are the minimum number of reserves that a bank ismandated to hold by the Federal Reserve, the central bank of the United States Thisrequirement is intended to ensure that banks have enough liquidity to meet their short-termobligationsandtoprovideabufferagainstpotentialfinancialshocks.Thesecondcategoryis excessreserves, 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 additionalliquidity, to earn interest, or to meet unexpected cash outflows (Mishkin, 2022)

According to Mishkin (2022), changes in the reserve requirement ratios affect themoneysupplybychangingthemultiplierofthemoneysupply.Ariseinreserverequirements restricts thenumber of deposits held by a given monetary base level, leading the money supply to contract.Increases in reserve requirements boost reserve demand and raiset h e

federal funds rate On the other hand, a reduction in reserve requirements causes the moneysupply to expand and the federal funds rate to fall Changes in reserve requirements arecurrentlyveryseldomutilizedasamonetarypolicyinstrumentsinceitisexpensiveforbanks to alter theirreserve holdings when reserve requirementschange.

2.1.1.3 Transmission mechanism of conventional monetarypolicy

Mishkin (2022) proposed four main transmission channels through which monetarypolicy affects the economy: the interest rate channel, the currency channel (or exchangerate

channel), the asset price channel, and the credit channel The details of the transmission mechanism of CMP are presented inFigure 2.1below.

Figure 2.1: Monetary policy transmission mechanism

Source: Mishkin (2022)

a Interest ratechannel

Modifying monetary policy leads to a change in the real interest rate, resulting in a shift in investment spending, thereby causing output The classic interpretation of the

monetary transmission mechanism is shown by the following diagram, which depicts theeffect of monetary policy easing achieved by reducing the rate of real interest:

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

b Exchange rate channel

The exchange rate channel also involves interest-rate effects because changes ininterest rates caused by policy can also have an impact on the currency rate Because theexchange rate represents the relative price of local and foreignmoney,it is affected bydomesticandinternationalmonetaryconditions.Thepreciseimpactofanofficialratechange on exchangerates is unpredictable since it will depend on assumptions about domestic and international interest ratesand inflation, both of which may be impacted by a policy shift Other factors being equal, an unexpected

instantappreciationofthedomesticcurrencyinforeignexchangemarkets,andviceversafor a correspondingrate decline Higher domestic interest rates relative to interest rates on similar foreign-currency assetsmake sterling assets more appealing to overseas investors, resulting in exchange rate appreciation The

investorspredictafuturedepreciationsignificantenoughtochoosebetweenowningsterling andforeign-currency assets

Changes in exchange rates cause changes in the relative pricing of local and foreignproductsandservices,atleastforaperiod,butsomeofthesepricechangesmaytakemonths

tomaketheirwaythroughthedomesticeconomyandevenlongertoalterspendingpatterns

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

r↓E↓NX↑Yad↑Monetary policy easing results in a decrease in real interest rates, domestic assets become less attractiver e l a t i v e t o a s s e t s d e n o m i n a t e d i n f o r e i g n

c u r r e n c i e s , r e s u l t i n g i n

exchange rate depreciation (E) The lower value of the domestic currency makes domesticgoods 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 attractiverelative to assets denominated in foreign currencies As a result, the value of dollar assetsrelative to other currency assets falls, and the dollar depreciates

c Asset pricechannel

Changes in the official rate impact the market value of securities like bonds andstocks Bond prices are inversely connected to long-term interest rates Thus, rising long-term rates reduce bond prices, while falling long-term rates raise bond prices If everythingelse is equal (particularly inflation predictions), higher interest rates drop the values ofotherinstruments,suchasshares.Thisisbecausepredictedfuturereturnsarediscountedbyalarger amount, lowering thepresent 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 separatelybelow

Tobin'sqtheory,developed by JamesTobin,describes how monetary policy mayaffecttheeconomythroughitsimpactsonequityvalue(stock).Giventhathigherstockprices result in greater qand, as a result, more significant investment expenditure(I)

r↓Ps↑q↑I↑Yad↑

Lowerrealinterestratesonbonds(r)meanthattheexpectedreturnonthisalternative to stocksfalls This makes stocks more attractive relative to bonds, and so demand for themincreases,which raises their price (Ps) Higher stock prices will lead to a higher q and thushigher

investment spending (I), and an increase in total output(Yad)

d Creditchannel

The credit channel of monetary policy transmission operates through changes inlending It is a mechanism that explains how monetary policy affects the economy throughitsimpactontheavailabilityandcostofcredit.AccordingtoMishkin(2022),banksuniquely

functioninthefinancialsystembecausetheyareuniquelyadaptedtoaddressingasymmetric

informationproblemsinlendingmarkets.Creditcanbeinfluencedbythepolicyinterestrate,

whichistheratethatthecentralbanksetsforlendingorborrowingmoneyintheshortterm

Thepolicyinterestrateaffectsthemarketinterestrates,whicharetheratesthatbanksand