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

Nguyen Quang My, Mustafa Sayim, Hamid Rahman


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.

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Copyright (c) 2017 Nguyen Quang My, Mustafa Sayim, Hamid Rahman

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This work is licensed under a Creative Commons Attribution 4.0 International License.

Research in Applied Economics ISSN 1948-5433


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