Departmental Bulletin Paper Empirical estimates of equilibrium real effective exchange rate for Vietnamese Dong

Nguyen, Cam Nhung  ,  Hoang, Minh Tri

21 ( 4・5 )  , pp.53 - 69 , 2017-01-20 , 横浜国際社会科学学会
This study examines the equilibrium real effective exchange rate (EREER) for the Vietnamese Dong in the long-term and estimates the misalignment of the real effective exchange rate (REER) by using a vector autoregression (VAR) model and cointegration analysis. The sample consists of quarterly data from 1997Q1 to 2014Q4. Among macroeconomic variables, the openness of economy (OPEN), productivity differential (PROD), money supply (M2), net foreign assets (NFA) and real interest rate differential (RR) are chosen for this study. The result shows that by the fourth quarter of 2014, the Vietnamese Dong was undervalued with respect to real value by about 5.07 percent. Besides, we also apply the impulse response functions (IRFs) to investigate the main factors contributing to the deviation of REER and find that the scale of M2 is a main variable causing the REER misalignment. In order to minimize the deviations of REER, the State Bank of Vietnam (SBV) should consider to extend M2 by 1.64 percent to gradually adjust REER to long-term

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