The study of relationship between exchange rate and inflation in Vietnam
Abstract
There have been many disputes of economists and policy makers over the possibility of rising inflation caused by Vietnam Dong devaluation as a matter of fact that Vietnam has been relying on imports for its development for many years. This thesis
aimed at providing insights into the relationship between those two important economic variables. By employing widely-known Vector Autoregression (VAR) model along with three types USD/VND exchange rate, including Nominal Exchange Rate, Black Market Exchange Rate and Real Exchange Rate and Inflation data for Vietnam during the period from 2005 to 2011, the empirical results showed that exchange rate had very little effect
on inflation and that main sources of variance in both inflation as well as exchange rate were “own shocks”, even though they were cointegrated. Additionally, inflation was pointed out to significantly affect real exchange rate. Main findings from this study
suggested some critical points in macroeconomics planning for government authorities in
coming years.