The effects of the united states unconventional monetary policy on financial mar

MINISTRY OF EDUCATION AND TRAINING STATE BANK OF VIET NAM HO CHI MINH UNIVERSITY OF BANKING NGO SY NAM THE EFFECTS OF THE UNITED STATES’ UNCONVENTIONAL MONETARY POLICY ON FINANCIAL MARKET AND REAL ECONOMY: EVIDENCE IN VIETNAM PH. THESIS MAJOR: FINANCE AND BANKING HO CHI MINH CITY, APRIL – 2024 MINISTRY OF EDUCATION AND TRAINING STATE BANK OF VIET NAM HO CHI MINH UNIVERSITY OF BANKING NGO SY NAM THE EFFECTS OF THE UNITED STATES’ UNCONVENTIONAL MONETARY POLICY ON FINANCIAL MARKET AND REAL ECONOMY: EVIDENCE IN VIETNAM PH. THESIS MAJOR : FINANCE AND BANKING CODE : 9340201 ACADEMIC ADVISORS : Assoc. Dr DOAN THANH HA HO CHI MINH CITY, APRIL – 2024 i DECLARATION I am Ngo Sy Nam, Ph.

Student, Course 25, majoring in Finance and Banking at Ho Chi Minh University of Banking. This thesis has never been submitted for a doctoral degree at any institution. This thesis is the author’s independent research work. The research results are honest, and there is no content published previously or implemented by others except for the quotations fully cited in the thesis.

I am responsible for the content of this study. Student Ngo Sy Nam ii ACKNOWLEDGEMENTS I want to express my appreciation to the Ho Chi Minh University of Banking. I have addressed the need to provide me with a nurturing academic environment and opportunities for personal growth. Their commitment to excellence in education has been instrumental in shaping my intellect and preparing me for future endeavors.

I am deeply grateful to Associate Professor Dr. Doan Thanh Ha, my supervisor, for his invaluable guidance, mentorship, and encouragement throughout my research and academic pursuits. Their expertise and constructive feedback have played a crucial role in shaping the direction of my studies and enhancing the quality of my work. I sincerely thank my family, especially my wife, for her unwavering support, love, and understanding.

Their constant encouragement and belief in my abilities have been a source of strength and motivation, enabling me to overcome challenges and strive for excellence. To everyone who has been part of my journey, directly or indirectly, your support and belief in my potential have been instrumental in my academic and personal growth. I am deeply grateful for your presence in my life. Student Ngo Sy Nam iii ABBREVIATIONS Words Meanings AAR Average abnormal return ADF Augmented Dickey-Fuller AEs Advanced economies AIC Akaike information criterion AR Abnormal return BOE Bank of England BOJ Bank of Japan 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 CF Capital inflow 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 FG Forward guidance FFR Federal funds rate FOMC Federal Open Market Committee FOREX Exchange rate GDP Gross Domestic Product GFC Global financial crisis HOSE Ho Chi Minh City Stock Exchange IMF International monetary fund IRF Impulse response function IRR Interest rate IS - LM Investment – Savings - Liquidity preference – Money Supply LSAP Large-scale asset purchase MBS Mortgage-backed securities MF Mundell-Fleming OECD Organization for Economic Co-operation and Development QE Quantitative easing SP Stock price iv SSR Shadow short rate SVAR Structural vector autoregression TAF Term Auction Facility UMP Unconventional monetary policy US United States VAR Vector autoregression VIX CBOE volatility index v TABLE OF CONTENTS DECLARATION.

iii TABLE OF CONTENTS. v LIST OF TABLES. ix LIST OF FIGURES. xii 1 CHAPTER 1: INTRODUCTION .1 MOTIVATION OF RESEARCH.4 THE SCOPE OF THIS STUDY .5 RESEARCH METHODOLOGIES AND DATA .1 Event study method .2 Structural vector autoregression model .7 THE STRUCTURE OF THE STUDY.

16 2 CHAPTER 2: THEORETICAL FRAMEWORK AND LITERATURE REVIEW.1 Conventional monetary policy .2 Conventional monetary policy tools .3 Transmission mechanism of conventional monetary policy .2 Unconventional monetary policy .2 Unconventional monetary policy tools .3 Transmission mechanism of unconventional monetary policy .4 International transmission of unconventional monetary policy .5 The differences between UMP and CMP .3 Financial market and real economy .2 THEORETICAL FOUNDATIONS OF THE STUDY .1 The Efficient Market Hypothesis .3 Asset pricing by discounted cash flow .4 Milton Friedman's money demand theory .6 The Mundell-Fleming-Dornbusch model .1 The effects of unconventional monetary policy .2 The methodologies review .1 Event study method .2 Vector autoregressive model approach .3 Research gap identification. 66 3 CHAPTER 3: RESEARCH METHODOLOGY AND DATA .1 Event study method .1 Introduction to event study method .2 The steps of event study method .2 Structural vector autoregressive model .1 Introduction to structural vector autoregressive model .2 Proposed research model .1 Data for ESM .2 Data for SVAR model. 89 4 CHAPTER 4: RESEARCH RESULTS .1 UNITED STATES’ UNCONVENTIONAL MONETARY POLICY DURING FROM 2007 TO 2022 .1 Federal Funds Rate in the US from 2007 to 2022.2 Large-Scale Asset Purchase Programs from 2007 to 2022 .3 Forward guidance from 2007 to 2022 .2 OVERVIEW OF THE FINANCIAL MARKET AND ECONOMY IN VIETNAM FROM 2000 TO 2022 .1 Overview of the financial market in Vietnam from 2000 to 2022 .1 Market size during the period from 2000 to 2022 .2 Fluctuations in the stock market during the period from 2000 to 2022 100 4.2 Overview of Vietnamese economy from 2000 to 2022 .1 Economic growth of Vietnam from 2000 to 2022 .2 Inflation in Vietnam during the period from 2000 to 2022 .3 RESEARCH RESULTS FROM ESM.1 The reaction of the market to the US’s UMP announcement.1 Abnormal average return of the market .2 Cumulative average abnormal return of the market .2 The reaction of different sectors to the US’s UMP announcement .1 Abnormal average return of different sectors .2 Cumulative average abnormal return of different sectors .4 RESEARCH RESULTS FROM SVAR .1 Correlation between variables .2 Data statistical description .3 The results from SVAR Model .1 Unit root test results .2 The optimal lag-length selection results.3 Diagnostic testing results .4 Impulse response results .5 Variance decomposition results .4 SVAR results for the GFC and during pandemic crisis .5 DISCUSSING RESEARCH RESULTS .1 The reaction of the financial market .1 Reaction of the financial market to US’s UMP announcements .2 Differences in financial market reactions during the GFC and COVID- 19 period 139 4.2 The response of the real economy .1 The response of the real economy to the shock .2 The differences in response of the real economy during the GFC and COVID-19 period. 142 5 CHAPTER 5: CONCLUSIONS AND POLICY IMPLICATIONS .1 Constructing and implementing unconventional monetary policies suitable for the context of Vietnam .2 Developing the financial market to increase the attraction of foreign investment flows .3 Monitoring the US’s monetary policy and adjusting its policy to respond to global economic developments.4 Focus on managing the potential risks of foreign capital flows and market volatility .5 Building resilience and promoting economic self-sufficiency in the face of external shocks .6 Investors consider selecting investment opportunities in the context of monetary policy fluctuations .4 LIMITATIONS AND SUGGESTIONS FOR FURTHER RESEARCH.

159 6 LIST OF REFERENCE. xv ix LIST OF TABLES Table 2.1: Unconventional monetary policy tools used by major central banks .2: The differences between CMP and UMP .3: Studies using the ESM relate to the US’s UMP policy announcements impacting financial markets .4: Studies using the VAR approach relate to the US’s UMP policy announcements impacting financial markets and the real economy .1: Expected correlations between variables.2: Event dates during the global financial crisis period .3: Event dates during the COVID-19 pandemic period .4: Description of variables and source of data .1: FFR adjustments during the Global Financial Crisis .2: FFR adjustments during the COVID-19 pandemic .3: The AAR of the market around the US’s UMP event dates .4: The CAAR of the market around the US’s UMP event dates .5: AAR of different sectors during the GFC .6: AAR of different sectors during the COVID-19 pandemic .7: CAAR of sectors during the global financial crisis .8: CAAR of sectors during the COVID-19 pandemic.9: Data statistical description .10: Unit Root Test Result (ADF test) .11: Lag order for each model according to selected criteria .12: Residual serial correlation LM tests .13: Contribution of CBB shocks to the forecast variance decomposition of GDP. 134 x LIST OF FIGURES Figure 1.1: Vietnam KOF Globalization Index .2: The research methods used to address the research objectives .1: Monetary policy transmission mechanism .2: Transmission channel of Quantitative Easing .3: International transmission mechanism of unconventional monetary policy 34 Figure 2.4: Some frontier markets in the world .5: Three level of efficient market .6: Summarize the related research .1: Time lengths for window frames used in the event study method .1: Fed total assets from 2007 to 2022 .2: The number of listed companies on the HOSE during the period from 2007 to 2022 .3: The market capitalization during the period from 2000 to 2022 .4: VNINDEX and the total trading volume during the period from 2000 to 2022 .5: VNINDEX and trading volume during the global financial crisis period .6: VNINDEX and trading volume during the COVID-19 pandemic .7: GDP growth of Vietnam from 2000 to 2022 .8: Inflation in Vietnam from 2000 to 2022 .9: The AAR of the market around the US’s UMP event dates .10: CAAR of the market during the GFC period and COVID-19 period.11: CAAR of sectors during the GFC and COVID-19 periods .12: CAAR of the market during the GFC period and COVID-19 period by the market-adjusted model .13: CAAR of sectors during the GFC and COVID-19 periods by the market- adjusted model .14: Correlation between change in Fed’s balance sheet and real GDP growth in Vietnam .15: Correlation between change in Fed’s balance sheet and inflation in Vietnam .16: Correlation between shadow short rate of the US and real GDP growth in Vietnam .17: Correlation between the shadow short rate of the US and inflation in Vietnam .18: Correlation between the VIX index and real GDP growth in Vietnam .19: Correlation between VIX index and inflation in Vietnam .20: Correlation between capital flow and real GDP growth in Vietnam .21: Correlation between capital flow and inflation in Vietnam .22: Inverse roots of AR characteristic polynomial .23: Responses of GDP and CPI to the US’s UMP shock .24: Responses of GDP and CPI to the VIX shocks .25: Responses of GDP and CPI to the CF shock .26: Responses of equity returns to the CF shocks .27: Responses of GDP and CPI to the SP shocks .28: Responses of GDP and CPI to the FOREX and IRR shocks .29: Responses of IRR to the US’s UMP shocks .30: Contribution of the US’s UMP shocks to the forecast variance decomposition of GDP .31: Contribution of the US’s UMP shocks to the forecast variance decomposition of CPI .32: The response of GDP to the US’s UMP shock in the period of GFC and during the pandemic crisis .33: The response of CPI to the US’s UMP shock in the period of GFC and during the pandemic crisis .34: Responses of GDP to the SSR, VIX and CF shocks .35: Responses of CPI to the SSR, VIX and CF shocks. 136 xii ABSTRACT During the Global Financial Crisis of 2007 – 2008 and the COVID-19 pandemic, conventional monetary policies were ineffective as the policy rates of central banks approached zero bounds.

In this context, central banks of developed countries have resorted to unconventional monetary policies (UMP) with tools such as quantitative easing, forward guidance, etc. This study examines the impact of the US’s UMP on the financial market and the real economy of Vietnam from 2007 to 2022. As a small, open country that is part of the frontier market group and is increasingly integrating with the world, Vietnam is somewhat affected by the monetary policies of developed countries, especially the US.