Leaning against the Wind Policies on Vietnam’s Economy with DSGE Model

Abstract

Abstract:The global financial crisis of 2007-2008 had a negative impact on many countries, including Vietnam. Many policies have been applied to stabilize the macro-economic indicators. However, most of them are based on old qualitative models, which do not help policy makers understand deeply how each one affects the economy. In this paper, we investigate a quantitative macro-economic approach and use leaning against the wind policies with the Dynamic Stochastic General Equilibrium model (DSGE) to find a better way to understand how policies stabilize the Vietnamese economy. Based on the framework of Gerali et al., we calibrate the hyper-parameter for Vietnam financial data and do the comparison between the standard Taylor rule and the cases in which we add asset price and credit elements. The results show that the credit-augmented Taylor rule is better than the asset-price-augmented one under the technology shock and contrary to the cost-push shock. Moreover, the extended simulation result shows that combining both asset-price and credit rules on the model is not useful for Vietnam's economy in both types of shock.

Growth and real business cycles in Vietnam and the Asean-5. Does the trend shock matter?

“…Finally, let us note that our counterfactual simulations strengthen to some degree the findings in Huynh et al (2017), according to which the monetary policy exerted through interest rates management was insufficient to face the economic downturn. Given our analysis and their evidence based on a calibrated DSGE model, it seems that a strategy more focused on fostering loan supply and targeting productivity generating sectors would have been more successful.…”

“…This second result, which is striking since it unveils strong real effects of Vietnam's proactive monetary policy in the past two decades, is consistent with the findings in Anwar and Nguyen (2018). In addition, our simulations strengthen Huynh et al (2017)'s claim that the Vietnamese monetary policy was unable to counterbalance the economic downturn through the managing of interest rates, and that loan supply should have been directed toward productivity generating sectors.…”

The Vietnamese business cycle in an estimated small open economy New Keynesian DSGE model

“…Indeed, this author used a model, which was developed by Ireland (2004). Huynh et al (2017) used a calibrated DSGE model with the banking sector to investigate how policies stabilize the Vietnamese economy. However, both Khieu (2014) and Huynh et al (2017) were limited to the aspect of a closed-economy.…”

“…Huynh et al (2017) used a calibrated DSGE model with the banking sector to investigate how policies stabilize the Vietnamese economy. However, both Khieu (2014) and Huynh et al (2017) were limited to the aspect of a closed-economy. Hence, these two studies could not reveal the essential effects of the international spillovers on the Vietnamese economy.…”