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8. Analysis of the Vietnamese dong. (12.5 points, with each item 2.5 points). Read the excerpted article "Vietnam Bucks Asia's Weakening Growth Trend" by Era DablaNorris, Federico J. Dez, and Giacomo Magistretti from the IMF Country Focus on September 6, 2022. "The first half of this year saw a swift economic rebound as Vietnam's pandemic restrictions eased following the adoption of a living-with-COVID strategy and a robust vaccination drive. Supportive policies such as low interest rates... have been accompanied by strong manufacturing output and a recovery in retail and tourism activity. Accordingly, we recently raised our Vietnam growth forecast to 7 percent this year, lifting it by a full percentage point from three months earlier and the only significant upward revision among major Asian economies... contrasts with dimming prospects elsewhere and would be the fastest pace among Asia's major economies.... Vietnam's inflation pressure has been mostly limited to some goods like fuels and related services like transport. Consumers are largely insulated from the global surge in food prices... Further, price gains for services, such as health and education, have also been very mild. Vietnam's recovery also faces headwinds from global growth decelerating... Such a slowdown implies reduced demand for Vietnam's exports, especially from key trade partners like the United States, China, and the European Union. In addition, financial conditions are tightening as interest rates in the United States and other advanced economies rise to curb inflation. That in turn increases financing costs and can lead to capital outflows, as we already see in many emerging markets in the region. Finally, greater uncertainty about global trade and financial markets could weigh on the recovery, especially if some industries lose access to needed intermediate goods because of further supplychain disruptions. That could curtail foreign investment in Vietnam, slowing production and technological growth." Assume that United States residents invest heavily in the Vietnamese government and stocks. In addition, Vietnamese residents invest heavily in the United States. Because your U.S.-based firm imports goods from Vietnam, you are assigned to forecast the value of VND (the Vietnamese dong) against the USD - i.e., you forecast St( VNDUSD). Explain how each of the following conditions will affect the value of the VND against the USD, holding all other things equal. (Please plot a figure to explain each condition. No figures, no points.) Questions: a. "Vietnam's inflation pressure has been mostly limited to some goods like fuels and related services like transport. Consumers are largely insulated from the global surge in food prices." While U. S. inflation has increased substantially, inflation in Vietnam remains stable. b. "Supportive policies such as low interest rates... have been accompanied by strong manufacturing output and a recovery in retail and tourism activity." "That in turn increases financing costs and can lead to capital outflows" While U. S. nominal interest rates have increased substantially, Vietnamese interest rates remain stable. c. "We recently raised our Vietnam growth forecast to 7 percent this year, lifting it by a full percentage point from three months earlier and the only significant upward revision among major Asian economies." The income level in Vietnam may increase substantially, while the income level in the U.S. has remained stable. (Hint: state clearly by which method you use.) d. "Such a slowdown implies reduced demand for Vietnam's exports, especially from key trade partners like the United States." U.S. consumers buy fewer imported goods from Vietnam. e. "greater uncertainty about global trade and financial markets could weigh on the recovery, especially if some industries lose access to needed intermediate goods because of further supply-chain disruptions. That could curtail foreign investment in Vietnam, slowing production and technological growth." Vietnam's economic and financial uncertainty is high and may worsen. You also assume that Vietnam is not a safe haven. 8. Analysis of the Vietnamese dong. (12.5 points, with each item 2.5 points). Read the excerpted article "Vietnam Bucks Asia's Weakening Growth Trend" by Era DablaNorris, Federico J. Dez, and Giacomo Magistretti from the IMF Country Focus on September 6, 2022. "The first half of this year saw a swift economic rebound as Vietnam's pandemic restrictions eased following the adoption of a living-with-COVID strategy and a robust vaccination drive. Supportive policies such as low interest rates... have been accompanied by strong manufacturing output and a recovery in retail and tourism activity. Accordingly, we recently raised our Vietnam growth forecast to 7 percent this year, lifting it by a full percentage point from three months earlier and the only significant upward revision among major Asian economies... contrasts with dimming prospects elsewhere and would be the fastest pace among Asia's major economies.... Vietnam's inflation pressure has been mostly limited to some goods like fuels and related services like transport. Consumers are largely insulated from the global surge in food prices... Further, price gains for services, such as health and education, have also been very mild. Vietnam's recovery also faces headwinds from global growth decelerating... Such a slowdown implies reduced demand for Vietnam's exports, especially from key trade partners like the United States, China, and the European Union. In addition, financial conditions are tightening as interest rates in the United States and other advanced economies rise to curb inflation. That in turn increases financing costs and can lead to capital outflows, as we already see in many emerging markets in the region. Finally, greater uncertainty about global trade and financial markets could weigh on the recovery, especially if some industries lose access to needed intermediate goods because of further supplychain disruptions. That could curtail foreign investment in Vietnam, slowing production and technological growth." Assume that United States residents invest heavily in the Vietnamese government and stocks. In addition, Vietnamese residents invest heavily in the United States. Because your U.S.-based firm imports goods from Vietnam, you are assigned to forecast the value of VND (the Vietnamese dong) against the USD - i.e., you forecast St( VNDUSD). Explain how each of the following conditions will affect the value of the VND against the USD, holding all other things equal. (Please plot a figure to explain each condition. No figures, no points.) Questions: a. "Vietnam's inflation pressure has been mostly limited to some goods like fuels and related services like transport. Consumers are largely insulated from the global surge in food prices." While U. S. inflation has increased substantially, inflation in Vietnam remains stable. b. "Supportive policies such as low interest rates... have been accompanied by strong manufacturing output and a recovery in retail and tourism activity." "That in turn increases financing costs and can lead to capital outflows" While U. S. nominal interest rates have increased substantially, Vietnamese interest rates remain stable. c. "We recently raised our Vietnam growth forecast to 7 percent this year, lifting it by a full percentage point from three months earlier and the only significant upward revision among major Asian economies." The income level in Vietnam may increase substantially, while the income level in the U.S. has remained stable. (Hint: state clearly by which method you use.) d. "Such a slowdown implies reduced demand for Vietnam's exports, especially from key trade partners like the United States." U.S. consumers buy fewer imported goods from Vietnam. e. "greater uncertainty about global trade and financial markets could weigh on the recovery, especially if some industries lose access to needed intermediate goods because of further supply-chain disruptions. That could curtail foreign investment in Vietnam, slowing production and technological growth." Vietnam's economic and financial uncertainty is high and may worsen. You also assume that Vietnam is not a safe haven
