The effect of financial stress index on the Vietnamese economic growth - A threshold auto regression approach

Abstract

 After the 2008 global financial crisis, financial stress index- an indicator measuring the instability and risk in financial markets has become one of the crucial indicators to forecast the financial crisis. Besides the models to estimate this index, the effect of financial stress on economic variables is the main topic that the economists focus on researching recently. For Vietnam, the economy experienced a double crisis in the period from 2008 to 2012. Besides the high inflation and the sharp decline in economic growth, the financial market also experienced a high risk and uncertainty period. Thus, whether there is a link between financial stresses and the decrease in economic growth in Vietnam is a big question. The study employs threshold vector auto-regression for the monthly data from 2008 to 2018 to find the answer to this question. The result indicates the existence of a threshold of financial stress index and the unusual association between financial stress and economic growth in Vietnam