Monetary Policy Spillovers from the U.S. and China to Vietnam: A Bayesian Vector Autoregressive Model

Abstract This study examines the asymmetric spillover effects of monetary policy tightening in the United States and China on a small, dual-exposed emerging Vietnam economy. It investigates how changes in the Federal Reserve’s federal funds rate and the People’s Bank of China’s benchmark lending rate transmit through financial and trade channels to shape Vietnam’s macroeconomic outcomes. Using a Bayesian Vector Autoregressive model and quarterly data from 2005 to 2024, we estimate Vietnam’s macroeconomic responses to policy rate shocks originating from the Federal Reserve and the People’s Bank of China. Our results confirm that United States monetary tightening induces immediate but statistically insignificant depreciation of the Vietnamese dong and sharp, reversible portfolio outflows, with muted impacts on GDP and inflation due to effective State Bank of Vietnam interventions. In contrast, Chinese rate hikes generate significant short-term import-price pressures, raising CPI by as much as 1.7 % and prompting a stronger State Bank of Vietnam policy response. Neither source of external tightening yields lasting output effects, suggesting that Vietnam’s domestic policy framework effectively buffers adverse impulses. These findings underscore the imperative for monetary authorities to employ an integrated policy toolkit capable of distinguishing overlapping external shocks. This study contributes a unified empirical framework that disentangles simultaneous spillovers from the world’s two largest monetary powers, offering generalizable guidance for policy design in similarly dual-dependent emerging markets.