The Effect of Foreign Shocks on Vietnam’s Economy

Vietnam’s economy has become increasingly vulnerable to external disturbances amid deepening trade and financial integration. This study investigates the macroeconomic effects of major international shocks on Vietnam, including shocks to U.S. interest rates, oil supply, oil prices, and global economic policy uncertainty. We first employ a structural vector autoregression (SVAR) model with sign restrictions to identify distinct external shocks. We then use the local projections (LP) approach to estimate the dynamic responses of the Vietnamese economy to these shocks. The results reveal substantial heterogeneity in the transmission and macroeconomic consequences of external shocks depending on their structural origins. In particular, inflation-driven monetary tightening, commodity-price disturbances, and global uncertainty shocks generate markedly different responses in domestic economic activity and macroeconomic stability. These findings highlight the importance for policymakers in Vietnam of distinguishing among different types of external shocks when designing monetary, exchange rate, and macroprudential stabilization policies.