The Implementation of the SBV's Monetary Policy in the Geopolitical Conflict Context of Russia - Ukraine: Analyzing the World Oil Price Through the DSGE Model and the VAR Model

Abstract

In the history of the global economy, the impacts of political conflicts on financial markets depend on two factors, including the level of energy price increases and the response of countries. Using the dynamic stochastic general equilibrium (DSGE) model and the vector autoregressive (VAR) model, the article analyzes the monetary policy shock to macro factors to determine the oil price shock to the implementation of monetary policy of the State Bank of Vietnam. The analysis from the DSGE theoretical model and the VAR model shows that there exists a significant impact of shocks on the response of monetary policy. Accordingly, from the VAR model, the results show that the oil price shock has a rather slow effect on changes in inflation and interest rates in the first 2 quarters and the long-term maintenance of its influence. From the DSGE model, the findings demonstrate that the monetary policy shocks have clear effects on the macro variables. These effects have occurred in the overall balance of the economy, specifically: a shock (a standard deviation) of 1% increase to the state variable will increase interest rates by about 0.3% from Q1 and lead to a decrease in output deviation by about 0.71%, which will reduce inflation by nearly 1.22%. The impact of the state variable shock will gradually decrease and disappear after 4 quarters.