Exchange rate determination in Vietnam

This study investigates the determinants of the exchange rate in Vietnam and suggests policy implications. Gregory Hansen cointegration tests and generalised variance decomposition (VDC) analysis were applied to monthly data from July 2004 to December 2013. The model was built based on the three popular approaches to exchange rate determination, which are purchasing power parity (PPP) approach, balance of payment (BOP) approach, and monetary and portfolio approach. This study finds that the price ratio between Vietnam and the US is an important determinant of Vietnam's exchange rate.