MINISTRY OF EDUCATION AND TRAINING STATE BANK OF VIETNAM
BANKING UNIVERSITY OF HO CHI MINH CITY
LE THI THUY HANG
THE IMPACT OF CNY/USD EXCHANGE RATE TO
VIETNAMESE MACROECONOMIC FACTORS
THESIS SUMMARY
Major: Finance - Banking
Code: 62.34.02.01
Supervisor: Assoc. Prof. Le Phan Thi Dieu Thao
April 2018, Ho Chi Minh city
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CHAPTER 1: INTRODUCTION
1.1. RESEARCH ARGUMENTS
Many experimental studies in the world (Kinnon, 2003; Ibrahim, 2007 ....) have shown that
exchange rate fluctuations of the third currency will affect the economies of other countries. The
closer trading relationship of countries in the same region are, the more effectible exchange rate
fluctuations does. In fact, China is Vietnam's neighbor as well as the largest trading partner of
Vietnam with steadily increasing trade surplus to Vietnam. With China's growing economic and
political power, CNY is increasing its influence in the world. While Vietnam is still using the semi-
floating exchange rate regime on USD as East Asian countries. Thus it is necessary to consider the
impact of the USD/CNY on Vietnamese macroeconomic factors. That is a reason why the author
selected the research topic "Impact of the RMB and US Dollar exchange rate on the
macroeconomic factors of Vietnam".
1.2. RESEARCH OBJECTIVES
The study objective is the examination of the impact of USD / CNY exchange rate on
macroeconomic factors by evaluating the specific effects of the USD / CNY exchange on economic
growth, inflation and currency in Vietnam. Based on the results, the study will propose some
recommendations in the exchange rate policy management in order to mitigate the negative effects
of exchange rate fluctuations, then contribute to Vietnamese economic objectives.
To achieve this goal, the study should answer the following questions: (1) How long does
the USD / VND exchange rate affect the macroeconomic factors of Vietnam including the short
and long term? (2) Is the relation between USD / VND exchange rate and USD / CNY exchange
rate a causal relation? (3) How does the USD / CNY exchange rate impact on macroeconomic
factors in short-term and long-term and what is its level?
1.3. OBJECT, SCOPE, AND METHODOLOGY
The study focused on the impact of the USD / CNY on macroeconomic factors in Vietnam,
including the GDP index as representing economic growth, CPI is proxy for inflation and the
money supply M2, the interest rate acts as the currency. Data is collected quarterly from the first
quarter of 2000 to the first quarter of 2017.
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The research use VAR model to evaluate the impact of USD / VND exchange rate to the
macroeconomic factors of Vietnam to answer the question (1) the combined study of exchange
rate policy analysis in Vietnam. Then, in response to question (2) the study conducted an analysis
of the CNY international process, the effect of CNY on other currencies, VECM model is used to
examine the causal relationship between the exchange rate USD / VND and USD / CNY exchange
rate. Finally, based on the results obtained in questions (1) and (2), combining with using SVAR
model to analyzes the relationship between Vietnam and China to resolve question (3).
1.4. RESEARCH RESULTS
This research contributes to the following new points:
(1) Scientific mean – contributing to theorical part of research: The study has contributed
to use basis theories of exchange rate and macroeconomic to experiments in Vietnam, where has
many arguments about its economy market mechanism. While most researches in the world apply
theoretical foundations to developed countries or well-structured market economy countries, the
study chose Vietnam as a sample to illuminate the application of those scientific foundations to
other economies that have similar economy structures with Vietnam. From that, the results will be
tested to define that they are consistent with theories and previous experimental studies.
(2) Practical mean – contributing to emperical studies: Current researches in Vietnam
analyze the exchange rate pass-through channel and the individual relationship between factors
such as exchange rate and interest rate, or exchange rate and growth, or exchange rate and inflation
…etc. This study examines the impact of exchange rates on macroeconomic factors by using
commodity market and money market in the same study to provide a comprehensive view. This is
a new point from other previous studies in Vietnam.
In contrast to studies in the world (Kinnon, 2003; Ibrahim 2007), this study has been done
in a volatile and integration reality environment, where capital inflows are liberalized vigorously;
high-fluctuation exchange rate; and up-down trends economy in recent times
The recent researches mainly deal with exchange rate policy of Vietnam and China, they
only analyze the actual situations, while the impact of the exchange rate is not quantified
specifically. This study examines the practical situation and applies econometric models to
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quantify the impact of exchange rates on macroeconomic factors, which are the basis suggestions
for policy management.
1.5. RESEARCH STRUCTURE
There is 6 chapters in thesis as follows:
Chapter 1: Introduction.
Chapter 2: Literature Review and Experimental Studies.
Chapter 3: The Impact of USD / VND exchange rate on macroeconomic factors of
Vietnam.
Chapter 4: The Relationship between USD / VND exchange rate and USD / CNY exchange
rate.
Chapter 5: The Impact of USD / CNY on macroeconomic factors in Vietnam.
Chapter 6: Research Results and Recommendations.
CHAPTER 2: LITERATURE REVIEW AND EMPIRICAL RESEARCHES
2.1. LITERATURE REVIEW
2.1.1. Exchange rate
The nominal exchange rate (NER) between two currencies is defined as the price of a
currency expressed in the number of other currencies.
The real exchange rate (RER) is commonly defined as the nominal exchange rate is
adjusted by the differences price level or price level of traded goods and non-traded goods.
2.1.2. Macroeconomic factors
Economic growth is defined as an increase in the size of economic growth in a given period
of time, creating the resources needed to improve the living conditions of the population. To
measure economic growth, the research used gross domestic product (GDP) growth, which is the
value of all final goods and services produced nationally in a given period of time.
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Inflation is the phenomenon of commodity prices rising by comparing with price level in
the past. Consumer price index is used to assess the inflation of the economy, which is defined as
an indicator to reflect the relative change in consumer prices over time.
Beside the two economic factors, countries also consider other macroeconomic factors on
monetary:
Money supply refers to the supply of money in the economy in order to meet the demand
for the purchase of goods, services, assets, etc. by entities (excluding credit institutions). The
money supply in circulation is divided into sections: M1; M2; M3.
Interest rate is the cost needed to get the funds to use in a certain period of time. The
mobilizing rate is the amount of money pays to depositors by credit institutions to use their money
for a certain period of time.
2.2. THEORIES
2.2.1. Exchange rate transmission mechanism
Transmission mechanisms of monetary policy are changes in monetary policy management
through transmission channels: interest rate, exchange rate, asset price, credit to impact to
economic variables to achieve objectives such as macroeconomic stability and price control.
Exchange Rate Pass Through (ERPT) is defined as the rate of change in import prices due
to a percent exchange rate change between import countries and export countries.
2.2.2. Exchange rate theory
Purchasing Power Parity (PPP) explains that the exchange rate between two currencies
must be equal to the rate changes in national price level.
Interest Rate Parity (IRP) holds that the exchange rate is determined between the two
currencies based on the current interest rates in those countries.