Abstract
The study investigates how the depreciation of the Vietnam dong (VND) against the US dollar (USD) affected export turnover and the stock market in Vietnam during the period from 2000 to 2020. A Markov triple regime-switching model is developed for time-series data involving multistructural breaks. Empirical results reveal that the impact of exchange rates on export turnover and stock price existed both in the long and short run. In the short run, the depreciation of VND led to (i) an increase in export turnover after 12 months; (ii) a decrease in export turnover of the high-growing regime in the short term; (iii) a reduction in stock returns in most cases. In addition, the common cycle from order receipt, preparation, production, and export is about 12 months for all states. The high volatility of export turnover was associated with high export growth. The commonly used phrase of “high risk, high return” seems to not be true for Vietnam’s stock market. The results of this study suggest the feasibility of a slight appreciation of VND against USD, which is the key to escape from being labeled a currency manipulator by the US Treasury.
Highlights
Exchange rates are a hot topic for academic debate and speculative market forces
The triple regime-switching model was developed for examining whether the depreciation of the Vietnam dong (VND) to the US dollar (USD) could lead to an increase in future export turnover and stock price in Vietnam
Data of the export value (EXP) and VND/USD exchange rates (EXR) of Vietnam were obtained from the database of the International Monetary Fund (IMF) from 31 July 2000 to 31 December 2020
Summary
Exchange rates are a hot topic for academic debate and speculative market forces. There are two macroeconomic variables of emerging economies such as Vietnam that play an important role with foreign investors, namely, inflation and exchange rate. The triple regime-switching model was developed for examining whether the depreciation of the Vietnam dong (VND) to the US dollar (USD) could lead to an increase in future export turnover and stock price in Vietnam. The high-growth state where the depreciation of VND negatively affects exports should belong to the FDI sector, where export prices do not depend much on the exchange rate in the short term.
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