Exchange rate pass-through and its heterogeneity under the pegged regime: a case of Vietnam

Abstract

This paper analyses the exchange rate pass-through effects (ERPT) into consumer prices in Vietnam with a pegged regime during 2001–2019 using a structural vector autoregressive approach. The model is identified based on the fit of data rather than a priori theorizing. Firstly, we find that the degree of ERPT in the country is higher than that in other emerging and developed economies. High and volatile inflation, a high degree of openness, and exchange rate regime are essential factors that explain the difference. Besides, we show that ERPT is positively correlated with the level and the volatility of inflation across sectors. Since the results are derived from a single country, the heterogeneity is more likely to be attributable to industry-specific rather than macro factors.