Exchange Rate Policy and Macroeconomic Stability in Vietnam
Main Article Content
Abstract
Since Jan 4th 2016, the State Bank of Vietnam (SBV) has applied the central exchange rate regime pegging VND to a basket of 8 currencies, which reflects the adaptation of macro policies in general, exchange rate policy in particular when integration context has changed. In order to propose suitable solutions to administrate exchange rate policy effectively, this article employs the VAR model, in which the relationship between exchange rate and three objectives of exchange rate policy (including prices, output and trade balance) are tested. The data used in this model is quarterly, in the period 2001q1-2017q3. Based on the results of the VAR model, a number of policy implications has been proposed, including: (i) continuing to apply currency basket pegged exchange rate regime; (ii) in stead of choosing to devaluate VND, the SBV should use other exchange rate management tools; (iii) speeding up the development of derivative exchange rate market is necessary to reduce the level of ERPT to the import price index so that helps to control inflation in Vietnam and (iv) the SBV should prioritize the exchange rate policy administration towards price stability through adopting the inflation-targeting monetary policy.
Keywords:
Exchange rate policy, exchange rate, inflation, economic growth, trade balance
References
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[2] Ghosh, A. and Rajan, R. S., “Exchange rate pass-through in Korea and Thailand: Trends and determinants”, Japan and the World Economy, No. 21 (2009), pp. 55–70.
[3] McCarthy, J., “Pass-Through of Exchange Rates and Import Prices to Domestic Inflation in Some Industrialized Economies”, Eastern Economic Journal, No. 33(4) (2000), pp. 511-537.
[4] Hahn, E., Pass-Through of External Shocks to Euro Area Inflation, European Central Bank, Working Paper No.243, 2003.
[5] Ito, T. and Sato, K., “Exchange rate changes and inflation in post-crisis Asian economies: VAR analysis of the exchange rate pass-through”, Journal of Money, Credit and Banking, No 40 (2008), pp. 1407-1438.
[6] Kim, K. H., “US Inflation and the Dollar Exchange Rate: A Vector Error Correction Model”, Applied Economics, 30(5), 1998, pp.613-619.
[7] Beirne, J. and Bijsterbosch, M., Exchange rate pass-through in central and eastern European member states, European Central Bank, Working Paper Series, No.1120, 2009.
[8] Huong, T.T.X., V.X.Vinh and N.P. Canh, “Transmission of monetary policy: A number of appropriate regression models”, Journal of Development and Integration, No. 16 (26), 2014, tr.41-46.
[9] Vinh, N.T.T, “The role of different channels on trasmitting monetary policy into output and price in Vietnam”, Journal of Economics and Development, No. 214 (2015), tr.20-30.
[10] Giang, L.T., Applied structural vector autoregression model to analyze monetary transmission mechanism in Vietnam, Dotoral Thesis, National Economics University, 2017.
[11] Trinh, P.T.T., “Impact of foreign exchange reserves to inflation: Approaching by VAR model”, Economic Development Review, No. 26 (2015), tr.46-68.
[12] Minh, V.V., Exchange rate pass-through and its implications for inflation in Vietnam, Vietnam development forum, Working paper 0902, 2009.
[13] Anh, N.D.M, T.M. Anh and V.T. Thanh, “Exchange rate pass-through into inflation in Vietnam: An assessment using Vector Autogression approach”, Vietnam Economic Management Review, 2010.
[14] Anh, P.T., “Applying SVAR model to analyzing exchange rate pass-through effects (ERPT) in Vietnam”, Journal of Economics and Development, No. 220 (2015), tr.48-58.
[15] Anh, P.V., Choosing the exchange rate regime in order to implement the inflation targeting policy in Vietnam, Doctoral Thesis, Foreign Trade University, 2017.
[16] Minh, H.D., The relationship between inflation and exchange rate in Vietnamese economy, Doctoral Thesis, Hanoi University of Science and Technology, 2014.
[17] Hausmann, R., Pritchett, L. and Rodrik, D., Growth accelerations, NBER Working paper series 10566, 2004.
[18] Rodrik D., “The Real Exchange Rate and Economic Growth”, Brookings Papers on Economic Activity, Vol. 2008, pp. 365-412.
[19] Gluzmann, P. A., Levy – Yeyati, E. and Sturzenegger, F., “Exchange rate undervaluation and economic growth: Díaz Alejandro (1965) revisited”, Economics Letters, No 117 (2012), pp. 666–672.
[20] Kappler, M., Reisen, H., Schularick, M. and Turkisch, E., “The Macroeconomic Effects of Large Exchange Rate Appreciations”, Open Econ Rev, No.24 (2012), pp.471–494.
[21] Habib, M. M, Mileva, E. and Stracca, L., “The real exchange rate and economic growth: Revisiting the case using external instruments”, Journal of International Money and Finance, Accepted Manuscript, 2017.
[22] Rose, A. K., “Exchange rates and the trade balance: Some evidence from developing countries”, Economics Letters, No. 34 (1990), pp.271-275, North-Holland.
[23] Vural, B. M. T., “Effect of Real Exchange Rate on Trade Balance: Commodity Level Evidence from Turkish Bilateral Trade Data”, Procedia Economics and Finance, No.38(2016), pp.499 – 507.
[24] Trang, L.M, Exchange rate policy to promote export of Vietnam, Doctoral Thesis, Thuong mai University, 2017.
[25] Bahmani – Oskooee, M., “Is there a long-run relation between the trade balance and the real effective exchange rate of LDCs?”, Economics Letters, No. 36 (1991), pp.403-407, North-Holland.
[26] Anh, D.T.H., Impact of the real exchange rate on trade balace in the context of international economic integration, Doctoral Thesis, Banking Academy, 2012.
[27] Arize, A. C., Malindretos, J. and Igwe, E. U., “A Convenient Method for the Estimation of ARDL Parameters and Test statistics: U.S.A Trade Balance and Real Effective Exchange Rate Relation”, International Review of Economics and Finance, 2017, http://dx.doi.org/10.1016/j.iref.2017.03.024.
[28] Wang, C. H., Lin, C. H. and Yang. C. H. et al, “Short-run and long-run effects of exchange rate change on trade balance: Evidence from China and its trading partners”, Japan and the World Economy, No. 24 (2012), 266-273.
[29] Koray, F. and McMillin, W. D., “Monetary shocks, the exchange rate, and the trade balance”, Journal of International Money and Finance, No.18 (1999), pp.925–940
[30] Hang, N.T.T., D.T.Minh, T.T.Thanh, L.H.Giang and P.V.Ha, Exchange rate policy choice in the context of economic recovery, VEPR, Working Paper No, 2010.
[31] Nhung, N.C. and T.T.T. Huyen, “Exchange rate pass-through into Vietnamese import prices by industries and by countries”, International Business Management, 11 (11), 2017, pp.1834-1843.