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

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  • Vuong, Quan-Hoang

Abstract

In this paper, we examine exchange rates in Vietnam’s transitional economy. Evidence of long-run equilibrium is 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 β’ = (1, 1, -1) for real exchange rates of currencies in question are not rejected. This empirics of relative PPP adds to found evidence by many researchers, including Flore 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 whether the theory may posit significant differences against one currency? We have found consensus, given inevitable technical differences, even with a smaller data 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 the hyperinflation period, after which the theory indicates that adjusting process actually accelerates. We observe that deviation appears to have been large in the early stages of the reform, mostly overvaluation. Over time, its correction took place leading significant deviations to gradually disappear.

Suggested Citation

  • Vuong, Quan-Hoang, 2003. "Essays on Vietnam’s Financial Reforms: Foreign Exchange Statistics and Evidence of Long-Run Equilibrium," OSF Preprints ahrjd, Center for Open Science.
    • Handle: RePEc:osf:osfxxx:ahrjd
    DOI: 10.31219/osf.io/ahrjd
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    Cited by:

    1. André Farber & Nguyen Huu Tu & Tran Tri Dung & Quan-Hoang Vuong, 2008. "The financial storms in Vietnam's transition economy: a reasoning on the 1991-2008 period," Working Papers CEB 08-023.RS, ULB -- Universite Libre de Bruxelles.
    2. Quan-Hoang Vuong & Tran Tri Dung & Thi Chau Ha NguyenN, 2009. "Mergers and Acquisitions in Vietnam’s Emerging Market Economy, 1990-2009," Working Papers CEB 09-045.RS, ULB -- Universite Libre de Bruxelles.
    3. Vuong, Quan-Hoang, 2010. "Mergers & Acquisitions Market in Vietnam’s Transition Economy," OSF Preprints cnp74, Center for Open Science.

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    More about this item

    JEL classification:

    • C12 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Hypothesis Testing: General
    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • C53 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Forecasting and Prediction Models; Simulation Methods

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