Effects of Cyclical Movements of Foreign Currency Interest Rates and Exchange Rates on the Vietnamese Currency’s Interest Rate and Exchange Rate

Abstract

This study attempts to measure the effects of cyclical movements of interest and exchange rates of selected OECD currencies on the interest and exchange rates of the Vietnamese currency in the pre- and post-regional crisis periods (1995–1997 and 2002–2004). The regression results show that, in the pre-crisis period, the exchange and interest rates of the French franc significantly affected the exchange rate of the Vietnamese currency (VND). The VND exchange rate in the post-crisis period was; however, affected only by the exchange rates of the Euro and British pound vis-a-vis the US dollar. On the other hand, the VND interest rate is found to have moved independently with these foreign currencies’ interest and exchange rates in both periods. Some brief explanations and implications are also provided in this study.