The Transmission of U.S. Monetary Policy Shocks to Developing Economies: Evidence from Vietnam

[Purpose] This study aims to analyze how U.S. monetary policy shocks affect the economy of Vietnam through key transmission channels, including trade, investment flows, and financial markets. [Design/methodology/approach] This study employs a Structural Vector Autoregression (SVAR) approach by using quarterly data from 2010 to 2023 and incorporates seven key variables, categorized into external (oil prices, foreign interest rates) and domestic (GDP, CPI, exchange rate, discount rate, and money supply) sectors. [Findings] The results indicate that a positive shock to U.S. policy rates is followed by a short-run decline in output growth of Vietnam, accompanied by an adjustment in the depreciation rate, consistent with tighter external financial conditions transmitting to real activity and the exchange rate. Oil-price shocks generate measurable movements in output growth and the exchange rate, with the output response exhibiting short-run volatility and subsequent adjustment over the horizon considered, while inflation dynamics respond within a narrow range. [Research implications] These findings carry direct policy and risk-management implications. The dominance of the exchange-rate and interest-rate channels indicates that these variables are the key instruments for cushioning Vietnam against external monetary and oil-price shocks. Greater exchange-rate flexibility and timely monetary adjustments are therefore required to preserve macroeconomic stability. [Originality/value] The paper develops a small-open-economy SVAR for Vietnam that jointly identifies U.S. policy-rate and global oil-price shocks over the 2010–2023 period and benchmarks the results against a conventional VAR model. Thereby providing an integrated, state-of-the-art picture of how external monetary and commodity shocks transmit to Vietnam’s macroeconomic variables. From a Decision Sciences perspective, this study provides analytical evidence that supports strategic policymaking by helping decision-makers evaluate trade-offs between economic growth and environmental sustainability under conditions of global interdependence and uncertainty.