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The macroeconomic effects of oil price and risk-premium shocks on Vietnam: Evidence from an over-identifying SVAR analysis

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  • Pham, Thai-Binh
  • Sala, Hector

Abstract

This paper studies the macroeconomic effects of oil price shocks in Vietnam. It expands Kilian’s (2009) framework to simultaneously consider risk-premium shocks and comprehensively assess their consequences on international competitiveness and the State Bank management of the monetary policy. Methodologically, this implies dealing with an over-identified structural vector autoregression (SVAR) model. Data wise, the analysis is performed on a unique dataset with variables defined at a monthly frequency running from 1998:01 to 2018:12. Demand-side, global-, and specific-oil price shocks determine inflation and international competitiveness, and play an essential role in explaining the long-run variations of several Vietnamese macroeconomic indicators (mainly the trade balance, three-month interest rates, and the inflation rate). Vietnam’s Dong pegging to the US Dollar results in a stronger impact of these shocks when real exchange rates and the rate of exports are modelled, than when real effective exchange rates and the trade balance are modelled. In the latter case, shock absorption is quicker given the multilateral trade context in which no single pegging holds. In association to the strong tie between Vietnam’s Dong and the U.S. dollar, we also uncover remarkable effects of risk-premium (or U.S. Federal Fund rate) shocks. Supply-side oil price shocks have little impact on inflation and international competitiveness but condition the monetary policy. Neglecting such influence in the past may have resulted in an excessively conservative monetary policy.

Suggested Citation

  • Pham, Thai-Binh & Sala, Hector, 2019. "The macroeconomic effects of oil price and risk-premium shocks on Vietnam: Evidence from an over-identifying SVAR analysis," MPRA Paper 96873, University Library of Munich, Germany, revised 05 Jul 2019.
  • Handle: RePEc:pra:mprapa:96873
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    File URL: https://mpra.ub.uni-muenchen.de/96873/1/MPRA_paper_96873.pdf
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    References listed on IDEAS

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    Keywords

    Oil price shocks; risk-premium shocks; SVAR; international trade; Vietnam;

    JEL classification:

    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
    • F62 - International Economics - - Economic Impacts of Globalization - - - Macroeconomic Impacts
    • Q41 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Demand and Supply; Prices
    • Q43 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Energy and the Macroeconomy

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