Abstract
This paper investigates the impact of exchange rate volatility on exports in Vietnam using quarterly data from the first quarter of 2000 to the fourth quarter of 2014. The paper applies the autoregressive distributed lag (ARDL) bounds testing approach to the analysis of level relationships between effective exchange rate volatility and exports. Using the demand function of exports, the paper also considers the effect of depreciation and foreign income on exports of Vietnam. The results show that exchange rate volatility negatively affects the export volume in the long run, as expected. A depreciation of the domestic currency affects exports negatively in the short run, but positively in the long run, consistent with the J curve effect. Surprisingly, an increase in the real income of a foreign country actually decreases Vietnamese export volume. These findings suggest some policy implications in managing the exchange rate system and promoting exports of Vietnam.
Highlights
In 2015, the exchange rate became a hot issue for Vietnam’s economy with regard to concerns about China’s devaluation of the Yuan, the increase of the federal fund rate of Fed, and the US dollar appreciation against many currencies in the world
For all of the above reasons, this paper investigates the impact of exchange rate volatility between Vietnam Dong (VND) and the basket of eight foreign currencies referred to in the central rate benchmark on exports of the Vietnamese economy using quarterly data from the first quarter of 2000 to the fourth quarter of 2014 and the Autoregressive Distributed Lag (ARDL) method of Pesaran et al (2001)
The result shows that export performance will be impacted by exchange rate volatility in the long run
Summary
In 2015, the exchange rate became a hot issue for Vietnam’s economy with regard to concerns about China’s devaluation of the Yuan, the increase of the federal fund rate of Fed, and the US dollar appreciation against many currencies in the world. Due to being pegged to the USD, the Vietnam Dong (VND) became more expensive against many foreign currencies, the competitiveness of Vietnamese goods and the trade balance was affected negatively. For all of the above reasons, this paper investigates the impact of exchange rate volatility between VND and the basket of eight foreign currencies referred to in the central rate benchmark on exports of the Vietnamese economy using quarterly data from the first quarter of 2000 to the fourth quarter of 2014 and the Autoregressive Distributed Lag (ARDL) method of Pesaran et al (2001). A surprising finding is that real foreign income has a negative impact on export volume of Vietnam in both the long run and the short run.
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