Growth and real business cycles in Vietnam and the Asean-5. Does the trend shock matter? |
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Institution: | 1. University of Economics Ho Chi Minh City, 59C Nguyen Dinh Chieu, District 3, Ho Chi Minh City, Vietnam;2. CFVG Ho Chi Minh City, 91 Ba Thang Hai Street, District 10, Ho Chi Minh City, Vietnam |
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Abstract: | We examine Vietnam’s economy in comparison with its closest trade partners. We show that capital accumulation has been the primary growth engine since the start of its transition to the pro-market economy in 1986 – the Doi Moi. We also show that the cyclical behavior of its macro aggregates is similar to that of its ASEAN-5 peers and other developing countries. We extend the standard small open economy RBC model by considering habit persistence and government consumption, which allows a close match of the moments of the growth variables. At the business cycle frequency, transitory productivity shocks account for approximately one-half of Vietnam’s output variance, while country risk and non-transitory productivity shocks account to close to one-fifth each. Regarding the Solow residual’s volatility, we find that the trend component merely accounts for 12 % of this variance in Vietnam, while in Thailand it is only 6 %. These findings refute the “the cycle is the trend” hypothesis in Aguiar and Gopinath (2007) and align with the hypotheses in García-Cicco et al. (2010) and Rhee (2017), where the stationary component is overwhelmingly dominant. We claim that technological progress and productivity-enhancing measures are fundamental for Vietnam’s economy to sustain high growth. |
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Keywords: | Vietnam ASEAN DSGE Real business cycles Trend shock Growth |
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