The Impact of Exchange Rate on Market Fundamentals: A Case Study of J-curve Effect in Vietnam.

My N. Q., Sayim M., Rahman H.

Research in Applied Economics, cilt.9, sa.1, ss.45-68, 2017 (Hakemli Dergi)

Özet

This study examines if there is an equilibrium relationship between gross domestic product (GDP), exchange rate fluctuation and trade balance in long-term and short-term in Vietnam. The results show that the short-term and long-term exchange rate fluctuations impact the trade balance in Vietnam; both ARDL (Autoregressive Distributed Lag) and ECM (Error Correction Model) methodologies implied that exchange rate has a statistically negatively impact on the trade balance. Particularly, Autoregressive distributed lag (ARDL) utilized to test the long -term impact, shows the trade balance deficit becomes worse when the REER (real effective exchange rate) increases. ECM (Error Correction Model) equation based on the long-term cointegration equation and impulse response, reveals that the domestic currency devaluation could not improve the trade balance, indicating that the J-curve effect does not hold on the dong, the currency of Vietnam.

Keywords: Exchange rate, J-Curve, Trade balance, GDP, Domestic currency devaluation, ARDL, ECM.