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The equilibrium real exchange rate of Vietnam : determinants and misalignments

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Nguyen, Anh Ngoc and Sarantis, Nicholas (2008) The equilibrium real exchange rate of Vietnam : determinants and misalignments. Centre for International Capital Markets discussion papers, 2008 (01). pp. 1-32. ISSN 1749-3412

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Abstract

This paper presents for the first time an empirical investigation of the equilibrium real effective exchange rate of Vietnam. We employ the BEER approach which has not been previously applied to Vietnam. We use monthly data for the period 1995-2005 to construct a unique data base of effective exchange rates, effective terms of trade and effective productivity against Vietnam’s main trade partners. A detailed review of Vietnam’s exchange rate policy is also provided. The empirical results indicate that productivity and terms of trade are the most significant determinants of Vietnam’s equilibrium real effective exchange rate. They also confirm the existence of significant misalignments in the Vietnamese Dong.

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