Essays on Vietnam’s Financial Reforms: Foreign Exchange Statistics and Evidence of Long-Run Equilibrium

Quan-Hoang Vuong ()

No 03-013.RS, Working Papers CEB from Université Libre de Bruxelles, Solvay Brussels School of Economics and Management, Centre Emile Bernheim (CEB)

Abstract: In this paper, we examine exchange rates in Vietnam’s transitional economy. Evidence of long-run equilibrium are established in most cases through a single co-integrating vector among endogenous variables that determine the real exchange rates. This supports relative PPP in which ECT of the system can be combined linearly into a stationary process, reducing deviation from PPP in the long run. Restricted coefficient vectors ß’ = (1, 1, -1) for real exchange rates of currencies in question are not rejected. This empirics of relative PPP adds to found evidences by many researchers, including Flre et al. (1999), Lee (1999), Johnson (1990), Culver and Papell (1999), Cuddington and Liang (2001). Instead of testing for different time series on a common base currency, we use different base currencies (USD, GBP, JPY and EUR). By doing so we want to know the whether theory may posit significant differences against one currency? We have found consensus, given inevitable technical differences, even with smallerdata sample for EUR. Speeds of convergence to PPP and adjustment are faster compared to results from other researches for developed economies, using both observed and bootstrapped HL measures. Perhaps, a better explanation is the adjustment from hyperinflation period, after which the theory indicates that adjusting process actually accelerates. We observe that deviation appears to have been large in early stages of the reform, mostly overvaluation. Over time, its correction took place leading significant deviations to gradually disappear.

Keywords: Exchange rates equilibrium; Co-integration; Purchasing power parity; Vietnam. (search for similar items in EconPapers)
JEL-codes: C12 C22 C53 (search for similar items in EconPapers)
Date: 2003-09
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