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Impacts of the monetary policy on the exchange rate: case study of Vietnam

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  • Van Anh Pham

Abstract

Purpose - The purpose of this paper is to evaluate and analyze impacts of the monetary policy (MP) – money aggregate and interest rate – on the exchange rate in Vietnam. Design/methodology/approach - The study uses data over the period of 2008–2018 and applies the vector autoregression model, namely recursive restriction and sign restriction approaches. Findings - The main empirical findings are as follows: a contraction of the money aggregate significantly leads to the real effective exchange rate (REER) depreciating and then appreciating; a tightening of the interest rate immediately causes the REER appreciating and then depreciating; and both the money aggregate and the interest rate strongly determine fluctuations of the REER. Originality/value - The quantitative results imply that the MP affects the REER considerably.

Suggested Citation

  • Van Anh Pham, 2019. "Impacts of the monetary policy on the exchange rate: case study of Vietnam," Journal of Asian Business and Economic Studies, Emerald Group Publishing Limited, vol. 26(2), pages 220-237, July.
    • Handle: RePEc:eme:jabesp:jabes-11-2018-0093
    DOI: 10.1108/JABES-11-2018-0093
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    More about this item

    Keywords

    Exchange rate; Vietnam; Monetary policy; VAR; Time series; C32; E52; F31;
    All these keywords.

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • F31 - International Economics - - International Finance - - - Foreign Exchange

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