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Exchange Rate Risk Premium in Vietnam

Author

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  • Ly Dai Hung

    (Vietnam Institute of Economics, Hanoi, Vietnam)

Abstract

We characterize the exchange rate risk premium on the context of a small open economy with controlled floating exchange rate regime. The risk premium is varying over time, and is increasing on inflation, decreasing on output growth, increasing on foreign direct investment capital inflows, and decreasing on the credit growth. The model can account for nearly 94% of risk premium on case study of USD forward selling contract in 11/2018. The evidence is based on a Time-Varying-Coefficients VAR model on a data set covering 85 observations over 02/2012-02/2019 in Vietnam.

Suggested Citation

  • Ly Dai Hung, 2019. "Exchange Rate Risk Premium in Vietnam," Working Papers hal-03126494, HAL.
    • Handle: RePEc:hal:wpaper:hal-03126494
    Note: View the original document on HAL open archive server: https://hal.science/hal-03126494
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    References listed on IDEAS

    as
    1. Ly Dai Hung, 2021. "Output-inflation Trade-off in the Presence of Foreign Capital: Evidence for Vietnam," South Asian Journal of Macroeconomics and Public Finance, , vol. 10(2), pages 179-192, December.
    2. Emmanuel Farhi & Matteo Maggiori, 2018. "A Model of the International Monetary System," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 133(1), pages 295-355.
    3. Svensson, Lars E. O., 1992. "The foreign exchange risk premium in a target zone with devaluation risk," Journal of International Economics, Elsevier, vol. 33(1-2), pages 21-40, August.
    4. Mark, Nelson C., 1985. "On time varying risk premia in the foreign exchange market: An econometric analysis," Journal of Monetary Economics, Elsevier, vol. 16(1), pages 3-18, July.
    5. Rey, Hélène, 2015. "Dilemma not Trilemma: The Global Financial Cycle and Monetary Policy Independence," CEPR Discussion Papers 10591, C.E.P.R. Discussion Papers.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Exchange Rate Premium; Foreign Exchange Intervention; Forward Contract;
    All these keywords.

    JEL classification:

    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • F31 - International Economics - - International Finance - - - Foreign Exchange

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