(Luận văn) the impact of exchange rate fluctuation on trade balance in short and long run , luận văn thạc sĩ

t to MINISTRY OF EDUCATION AND TRAINING UNIVERSITY OF ECONOMICS HOCHIMINH CITY ng hi ep w n lo ad PHAM THI TUYET TRINH ju y th yi pl al n ua THE IMPACT OF EXCHANGE RATE FLUCTUATION n va ON TRADE BALANCE IN SHORT AND LONG RUN ll fu oi m at nh z z ht vb k jm THESIS OF MASTER IN ECONOMICS om l.c gm n a Lu n va y te re th HO CHI MINH CITY – 2011 t to MINISTRY OF EDUCATION AND TRAINING UNIVERSITY OF ECONOMICS HOCHIMINH CITY ng hi ep w n lo PHAM THI TUYET TRINH ad ju y th yi pl THE IMPACT OF EXCHANGE RATE FLUCTUATION al n ua ON TRADE BALANCE IN SHORT AND LONG RUN n va fu ll Major: Finance and Banking oi m at nh Major code: 60.31.12 z z jm ht vb THESIS OF MASTER IN ECONOMICS k om l.c gm n a Lu ACADEMIC SUPERVISOR: Ph.D NGUYEN VAN PHUC n va y te re th HO CHI MINH CITY – 2011 ACKNOWLEDGEMENTS t to ng hi I would like to send special thanks to all the teachers who gave interesting lecture ep to me for their devoted instruction during my studying in this master course w n lo I am specially thankful to Ms Ha Thi Thieu Dao for her precious data without ad y th which I could not finish this study and for her carefully reading, editing and ju detailed comments on my study yi pl ua al I express my profound sense of gratitude and sincere thanks to Mr Nguyen Van n Phuc, academic supervisor, for suggesting research problems, giving valuable n va guidance and providing constant encouragement ll fu oi m I am particularly indebted to my family, especially my mother and my daughter, at nh who have given me great emotion and encouragement z z k jm ht vb om l.c gm n a Lu n va y te re th i ABSTRACT t to ng This study shows the short and long-run impact of exchange rate on trade hi balance in Vietnam Following a depreciation of real exchange rate, trade balance ep initially deteriorates Trade balance will improve after two quarters and new w equilibrium will be set after twelve quarters Johansen’s cointegration analysis and n lo autoregressive distributed lag (ADRL) are respectively used to explore long-run ad y th impact, giving similar estimation results, showing trade balance improvement ju following a depreciation Corresponding error correction modes (ECM) based on yi long-run cointegration equations also come to consistent results, indicating pl ua al immediate deterioration of trade balance after a depreciation Impulse response n functions based on ECM and unrestricted Vector AutoRegression (VAR) exhibit n va J-curve pattern of trade balance when there is a permanent depreciation oi m distributed lag, J-curve ll fu Key word: exchange rate and trade balance, cointegration, autoregressive at nh z z k jm ht vb om l.c gm n a Lu n va y te re th ii CONTENTS t to ng Acknowledgement i hi Abstract ii ep Content iii w List of tables vii n lo List of figures viii ad y th Abbreviations ix ju CHAPTER 1: INTRODUCTION yi 1.1 Background to the study and statement of problem pl ua al 1.2 Research question n 1.3 Research objectives n va 1.4 Methodology ll fu 1.5 Limitation oi m 1.6 Organization of the study nh CHAPTER 2: LITERATURE REVIEW at 2.1 General arguments about exchange rate z z 2.1.1 Exchange rate concepts vb jm ht 2.1.2 Nominal exchange rate and real exchange rate 2.1.2.1 Bilateral nominal and real exchange rate k gm 2.1.2.2 Real effective exchange rate 2.1.3 Main determinants of exchange rate movement l.c om 2.1.3.1 Differential in inflation a Lu 2.1.3.2 Terms of trade 10 n 2.1.3.3 Differential in interest rates 10 va 2.1.3.4 Political stability and economic performance 10 n 2.2.2 Determinants of trade balance 12 iii th 2.2.1 Trade balance as an account on the balance of payment 11 y 2.2 Trade balance concepts 11 te re 2.1.3.5 Condition of balance of payment 11 2.3 Relationship between exchange rate and trade balance 13 t to 2.3.1 The elasticities approach 13 ng hi 2.3.1.1 Marshall-Lerner condition 13 ep 2.3.1.2 The J-curve effect 14 w 2.3.2 Keynesians multiplier approach 15 n lo 2.3.3 Theoretical model 16 ad 2.3.4 Empirical evidences 17 y th ju 2.3.4.1 Brief of empirical studies on developed countries 17 yi 2.3.4.2 Brief of empirical studies on developing countries 18 pl ua al 2.3.4.3 Summary of empirical studies on Vietnam 19 2.4 The role of exchange rate policy to trade balance 20 n n va 2.4.1 Exchange rate policy concepts 20 ll fu 2.4.2 Exchange rate regimes 21 oi m 2.4.3 Instruments of exchange rate policy 23 2.4.3.1 Direct instruments 23 nh at 2.4.3.2 Indirect instruments 23 z z 2.4.4 The importance of exchange rate policy to trade balance 24 vb Chapter summary 26 ht gm EXCHANGE RATE IN VIETNAM IN 2000-2010 k jm CHAPTER 3: PERFORMANACE OF TRADE BALANCE AND 3.1 The background of Vietnam’s economy in 2000-2010 period 28 l.c om 3.2 The performance of trade balance in 2000-2010 period 30 a Lu 3.2.1 In terms of value 31 n 3.2.2 In terms of structure by products 34 va 3.2.3 In terms of structure by trading partners 36 n y 3.3.1 Nominal exchange rate under management of The State bank of te re 3.3 The fluctuation of exchange rate in 2000-2010 period 38 3.3.2 Movement of real exchange rates 41 iv th Vietnam and the role of US Dollar 38 3.3.2.1 Real exchange rates computation 41 t to 3.3.2.2 Analysis bilateral real exchange rate and real effective ng hi exchange rate 44 ep Chapter summary 48 w CHAPTER 4: ESTIMATING THE IMPACT OF REAL EXCHANGE n lo RATE ON TRADE BALANCE IN VIETNAM IN 2000-2010 ad 4.1 Model specification 49 y th ju 4.2 Data description 50 yi 4.2.1 Technical data description 50 pl ua al 4.2.2 Econometric characteristics of the data 51 4.2.2.1 Seasonality 51 n n va 4.2.2.2 Stationarity 52 ll fu 4.3 Model for estimation 53 oi m 4.4 Estimation of long-run effect 54 4.4.1 Johansen’s cointegration analysis 55 nh at 4.4.2 Autoregressive distributed lag (ARDL) approach 57 z z 4.5 Estimation of short-run effect 63 vb 4.5.1 Error-correction model (ECM) 64 ht k jm 4.5.2 Impulse response 66 gm Chapter summary 67 CHATER 5: CONCLUSION AND POLICY RECOMMENDATION l.c om 5.1 Conclusion 69 5.2.1 Exchange rate policy should take a Lu 5.2 Policy recommendation 70 into account trade n 5.3 Limitation 78 v th 5.2.4 Depreciating currency to improve trade balance 77 y 5.2.3 Establishing condition for a successful depreciation 74 te re 5.2.2 Determining value of VND based on currency basket 73 n va competitiveness 70 REFERENCES 80 t to ng APPENDIX A: REER computation 86 hi APPENDIX B: Estimation output and relevant test for long-run impact of ep real exchange rate on trade balance 99 w APPENDIX C: Estimation output of Johansen’s cointegration test for long- n lo run impact of real exchange rate on exports and imports 102 ad APPENDIX D: Output of ECM model estimation based on cointegrating y th ju equation obtained by Johansen’s procedure and ARDL approach 103 yi APPENDIX E: Narayan’s new set of critical values for the bound F-test 106 pl n ua al n va ll fu oi m at nh z z k jm ht vb om l.c gm n a Lu n va y te re th vi LIST OF TABLES t to ng Table hi 2.1 Exchange rate regime classification by IMF 22 ep 3.1 GDP, Inflation, FDI, FII, ODA, Current transfer in 2000-2010 28 w 3.2 Structure of exports by foreign trade standard in 2000-2010 34 n lo 3.3 Structure of imports in 2000-2010 35 ad y th 3.4 Trade balances (million USD) with 17 largest trading partners 37 ju 3.5 Real exchange rates of some currencies 38 yi 3.6 Fluctuation bands applied from 1999-2010 39 pl ua al 3.7 Nominal exchange rate between VND and USD in 2000-2010 39 n 3.8 VND/USD RER and REER 44 n va 4.1 ADF and PP tests results for non-stationarity of variables 53 ll fu 4.2 Correlation matrix of variables 54 oi m 4.3 Cointegration Rank Test: Trace and Maximum Eigenvalue Statistics 55 nh 4.4 Granger Causality Test in Vector AutoRegression (VAR) 56 at 4.5 Statistic of selecting lag order (SBC and AIC) and F-Statisctics for z z testing the existence of a levels trade balance equation 59 vb jm ht 4.6 Estimated ARDL(2,3,0) model 60 4.7 Ramsay RESET test for estimated ARDL(2,3,0) model 60 for estimated gm LM Test k 4.8 Breusch-Godfrey Serial Correlation ARDL(2,3,0) model 61 l.c om 4.9 ECM for trade balance based Johansen’s procedure 64 a Lu 4.10 ECM for trade balance based on ARDL (2,3,0) 64 n 4.11 Breusch-Godfrey Serial Correlation LM Test for ECM 65 va 4.12 Ramsey RESET Test for ECM 65 n y 5.1 Shares of main trading partners (percent) of neighboring countries, 2004 72 te re 4.13 Impulse response of trade balance following real exchange rate shock 66 th vii LIST OF FIGURES t to ng Figure hi 2.1 The J-curve effect 15 ep 3.1 The trade balance, current account of Vietnam in 2000-2010 30 w 3.2 Values of exports and imports (million USD) in 2000-2010 32 n lo 3.3 Growth of export and import (percent) in 2000-2010 32 ad y th 3.4 Trade balance in FOB prices and CIF prices in 2000-2010 33 ju 3.5 VND/USD exchange rate and trade balance in 2000-2010 41 yi 3.6 RER and trade balance 45 pl ua al 3.7 VND/USD RER, VND’s REER and USD’s REER 46 n 3.8 REER and trade balance with major trading partners 47 n va 4.1 Series used in empirical analysis: TB, REER, GDP,GDP* 51 ll fu 4.2 Seasonally adjusted series: TB, REER, GDP,GDP* 52 oi m 4.3 CUSUM test for estimated ARDL(2,3,0) model 61 nh 4.4 CUSUM Test for ECM 65 at 4.5 Evolution of trade balance following real depreciation 67 z z 5.1 VND/USD exchange rate and RER, NEER, REER of VND 2000-2010 71 vb k jm ht 5.2 NEER, REER of some countries 79 om l.c gm n a Lu n va y te re th viii n lo ad ju y th yi 93.0 107.1 100.1 102.9 90.2 107.1 126.4 133.6 134.3 126.4 133.6 168.0 86.8 95.9 133.6 99.7 91.8 106.8 102.2 101.3 88.3 105.3 129.4 137.9 134.9 129.5 137.9 163.1 94.0 94.5 137.9 2004Q4 97.9 100.6 95.1 114.8 108.1 99.7 86.7 103.2 136.9 148.5 152.4 132.7 148.5 167.3 101.4 103.7 148.5 2005Q1 97.9 98.5 92.7 119.4 99.7 85.8 103.3 109.7 132.0 131.8 121.2 132.0 183.0 86.7 98.3 132.0 2005Q2 97.2 96.9 88.2 118.4 97.2 98.7 84.8 102.7 119.5 132.5 137.2 124.6 132.5 183.3 89.5 96.9 132.5 2005Q3 98.1 95.6 84.8 114.9 101.1 98.9 84.1 102.5 120.4 131.4 139.5 122.0 131.4 176.3 94.3 93.6 131.4 2005Q4 94.5 92.8 79.2 115.2 104.5 96.1 81.9 99.4 136.8 128.6 143.6 118.8 128.6 172.0 103.8 95.4 128.6 2006Q1 94.8 93.4 77.1 118.6 94.6 98.0 at 99.6 119.3 114.2 119.7 106.8 114.2 186.5 91.8 89.1 114.2 2006Q2 95.6 96.1 78.0 120.7 101.7 100.4 81.5 100.3 135.7 125.1 130.4 118.5 125.1 194.3 94.0 90.6 125.1 2006Q3 95.5 96.4 76.8 119.5 108.2 99.0 80.9 vb 142.6 131.9 136.4 124.7 131.9 193.0 102.7 87.1 131.9 2006Q4 93.8 95.8 75.0 123.2 114.7 97.6 78.9 96.0 150.6 132.9 144.2 128.4 132.9 191.8 113.1 91.5 132.9 2007Q1 95.4 94.5 71.2 118.9 101.3 101.2 77.8 96.3 122.1 120.0 123.7 117.6 120.0 203.1 95.2 83.2 120.0 2007Q2 96.9 95.1 69.3 118.6 106.7 101.6 76.8 96.5 137.3 129.3 138.1 126.1 129.3 206.8 100.4 83.9 129.3 2007Q3 99.0 95.4 70.2 116.6 112.8 98.8 75.9 94.6 139.0 2004Q3 101.5 133.6 144.0 129.8 133.6 204.7 109.2 84.4 133.6 2007Q4 94.4 95.7 70.0 115.7 113.5 96.2 72.9 89.0 141.2 138.1 153.1 127.4 138.1 205.6 120.4 84.7 138.1 2008Q1 94.7 92.7 69.2 102.7 98.9 95.4 69.1 85.0 109.7 118.7 125.9 105.2 118.7 210.6 101.1 79.8 118.7 2008Q2 91.3 89.9 64.3 89.8 97.7 90.2 64.5 79.8 116.0 122.0 129.5 103.3 122.0 206.1 95.3 75.3 122.0 2008Q3 90.9 87.1 61.9 84.4 95.9 87.8 62.7 78.6 123.0 118.4 126.3 100.6 118.4 195.2 97.6 69.4 118.4 2008Q4 87.4 81.5 69.1 67.7 93.7 79.6 62.1 75.1 109.1 105.8 99.2 83.2 105.8 175.5 97.5 70.5 105.8 2009Q1 90.4 82.4 70.7 66.6 84.1 81.2 65.1 78.1 87.3 96.0 86.8 70.0 96.0 169.0 85.7 65.2 96.0 2009Q2 87.4 79.2 66.3 69.7 83.1 79.0 61.9 75.2 91.9 96.1 95.1 72.7 96.1 169.4 82.5 64.6 96.1 2009Q3 86.7 79.8 67.8 71.9 83.6 78.2 60.0 74.5 95.0 98.9 102.9 76.1 98.9 168.6 80.5 59.9 98.9 n ua al 102.6 101.5 pl 2004Q2 n va 98.0 oi m ll fu nh 81.5 z z 99.7 k jm ht gm om l.c an Lu va n y te re ac th si eg cd jg 94 hg n lo ad ju y th yi 75.1 82.0 91.3 87.1 65.6 80.6 108.6 110.1 121.0 83.5 110.1 188.5 90.2 62.9 110.1 93.1 90.4 72.8 85.2 94.4 89.3 66.8 80.5 114.5 103.9 122.7 79.2 103.9 211.4 93.5 71.7 103.9 2010Q2 90.4 86.9 69.9 92.4 88.5 63.7 77.1 111.5 91.5 114.7 72.7 91.5 192.2 90.4 68.3 91.5 2010Q3 92.9 89.5 75.2 79.5 91.2 62.2 77.3 114.8 93.1 117.8 76.0 93.1 187.8 93.5 62.8 93.1 2010Q4 97.2 95.3 79.2 85.0 101.4 94.4 64.4 79.4 118.5 100.0 130.7 81.0 100.0 190.3 95.9 65.0 100.0 79.8 n va 2010Q1 n 88.2 ua al 93.1 pl 2009Q4 95.3 m ll fu oi Note: CNY: China Yuan, SGD: Singapore Dollar, JPY: Japanese Yen, KRW: Korean Won, THB: Thai Bath, MYR: Malaysian nh Ringgit, HKD: Hongkong Dollar, USD: United States Dollar, IDR: Indonesian Rupiah, EUR1: currency of Germany; AUD: at z Australian Dollar, GDP: Great Britain Pound, EUR2: currency of France; RUB: Russian Ruble, PHP: Philippine Peso, TWD: z vb New Taiwan Dollar, EUR3: currency of Netherlands KRW THB MYR HKD USD IDR EUR1 AUD k CNY SGD JPY jm ht TABLE 1.5 – TRADE WEIGHTS OF CURRENCIES (PERCENT) GBP EUR2 RUB PHP TWD EUR3 TOTAL 13.1 16.6 7.2 4.1 2.7 3.4 4.7 2.3 3.6 15.6 2.3 2.8 1.2 2.2 8.8 1.9 100 2000Q2 11.2 15.2 17.2 7.5 3.3 2.7 3.1 3.5 2.3 2.2 13.4 1.7 2.5 1.2 2.3 9.0 1.6 100 2000Q3 8.5 10.7 16.0 7.3 4.5 2.8 3.1 4.3 2.1 4.5 17.7 l.c 2.7 1.8 1.3 1.9 9.5 1.5 100 2000Q4 12.3 10.8 16.4 6.8 4.1 2.7 3.1 3.7 1.6 3.7 17.8 2.0 2.3 1.2 1.2 8.8 1.4 100 2001Q1 10.7 15.2 17.5 8.2 4.2 2.8 3.3 4.5 2.2 4.2 6.4 2.6 2.5 2.0 1.8 9.8 2.1 100 2001Q2 12.1 13.2 17.2 9.0 4.3 3.0 3.2 5.6 2.5 3.8 5.1 2.1 2.5 2.0 1.9 10.5 1.8 100 2001Q3 11.4 11.4 20.1 8.3 3.8 3.0 3.0 6.2 2.1 4.3 4.0 3.1 3.2 2.2 1.6 10.7 1.6 100 2001Q4 11.4 13.5 16.2 8.9 4.5 3.3 3.5 5.7 1.8 4.5 4.2 2.6 3.4 2.3 re 1.1 11.2 1.7 100 2002Q1 10.5 13.3 17.2 8.4 4.0 3.6 3.5 6.1 2.6 4.4 4.6 2.9 3.0 2.4 1.3 10.4 1.8 100 2002Q2 11.4 12.4 14.8 8.4 3.7 3.2 3.5 8.7 2.6 4.1 5.2 2.3 2.4 2.5 1.2 11.5 1.9 100 om 7.4 gm 2000Q1 an Lu va n y te ac th si eg cd jg 95 hg n lo ad ju y th yi 3.5 10.5 2.1 5.0 5.0 2.3 1.9 2.1 1.8 10.1 1.5 100 9.4 3.8 2.5 4.1 10.7 1.8 3.3 5.8 2.2 2.4 2.0 1.1 11.1 1.5 100 8.2 4.2 3.3 2.8 14.2 2.6 3.5 9.2 2.6 2.5 1.5 1.0 7.8 1.8 100 3.8 3.1 3.1 16.0 2.8 3.4 5.8 2.3 2.2 1.7 1.0 9.2 2.4 100 1.7 3.5 14.7 2.6 4.8 7.0 2.5 2.0 1.7 1.7 9.3 2.0 100 2.7 4.0 9.9 2.1 3.0 5.7 2.4 2.4 1.6 1.1 10.1 2.0 100 1.2 3.1 11.6 2.9 4.3 4.3 2.9 2.1 2.1 1.3 9.0 1.7 100 3.1 11.6 2.1 3.5 4.4 2.8 2.0 1.8 1.5 10.2 1.5 100 2.0 3.0 4.4 2.3 2.9 1.6 1.7 8.9 1.4 100 3.7 5.4 2.2 2.5 1.9 1.2 7.0 1.5 100 2.0 3.4 6.3 2.2 1.9 2.0 1.9 9.0 2.0 100 11.1 2.1 k 2.7 4.6 2.0 2.2 1.9 2.1 9.6 1.6 100 2.8 12.9 1.6 2.7 5.4 2.0 1.5 1.8 2.1 8.8 1.5 100 4.2 2.7 11.9 2.4 3.3 5.0 2.1 2.0 1.3 1.2 8.9 1.7 100 5.9 3.4 2.6 12.3 3.0 3.4 5.4 2.2 1.8 1.5 2.1 8.2 1.7 100 7.0 5.0 4.1 2.8 12.7 2.8 2.9 6.5 1.9 1.7 1.5 1.6 9.0 1.6 100 13.4 6.5 5.5 4.3 2.4 12.9 2.6 3.1 8.7 Lu 9.7 11.0 14.1 2003Q2 11.4 11.0 12.9 7.9 2003Q3 12.8 7.4 15.5 6.9 3.9 2003Q4 14.9 9.6 16.2 8.2 4.1 2004Q1 14.5 11.5 14.7 8.2 4.7 2004Q2 14.3 9.6 13.2 8.6 4.1 5.7 2004Q3 13.1 10.5 14.7 6.9 4.7 3.7 2.7 2004Q4 16.5 9.7 14.9 8.4 5.5 3.6 3.0 10.9 2005Q1 14.6 9.9 15.0 7.7 4.8 3.8 2.8 10.6 2005Q2 14.8 11.2 14.7 8.3 5.0 3.4 2.7 2005Q3 15.1 11.0 14.4 6.7 6.1 3.7 2005Q4 15.6 11.8 13.4 6.7 5.8 2006Q1 14.1 10.6 15.2 6.4 2006Q2 14.1 11.3 13.6 2006Q3 14.1 11.3 1.9 1.5 0.9 1.6 7.7 1.6 100 2006Q4 16.2 11.2 14.1 6.6 5.8 3.3 2.9 11.6 2.8 3.9 5.9 1.9 1.9 1.1 1.1 7.8 1.9 100 2007Q1 16.1 10.7 13.1 7.2 5.2 3.1 2.7 12.8 3.6 3.2 4.9 1.9 3.5 1.1 1.1 8.0 1.8 100 2007Q2 17.1 10.8 12.1 7.4 4.8 3.8 2.8 12.6 3.1 4.1 3.6 1.9 1.8 1.0 2.1 9.2 1.8 100 2007Q3 16.3 10.3 13.5 6.8 5.3 4.5 2.6 13.8 2.2 3.2 4.6 1.8 2.0 1.0 1.6 8.4 1.9 100 2007Q4 18.1 10.1 13.7 7.0 5.1 4.1 2.7 11.6 2.0 3.1 6.4 1.5 1.9 1.2 1.1 8.8 1.7 100 fu oi at z z 15.6 vb 2.1 jm ht y te re 2003Q1 n 16.6 va 8.6 an 13.2 om 2002Q4 l.c 1.5 nh 15.3 gm 3.7 m ll 13.4 n 9.0 va 11.2 n ua al pl 2002Q3 ac th si eg cd jg 96 hg n lo ad ju y th yi 5.1 3.9 3.2 10.8 1.9 3.1 4.6 1.7 1.6 1.5 1.6 8.4 1.5 100 7.7 5.4 4.0 3.1 11.3 2.2 2.7 4.7 1.7 1.4 1.6 2.3 8.5 1.6 100 7.2 5.3 3.7 2.6 12.9 2.1 3.0 6.0 1.5 1.4 1.2 2.6 8.3 1.7 100 5.3 3.9 3.0 14.2 2.3 3.2 3.4 1.7 1.8 3.7 0.8 7.7 2.2 100 m ll 4.6 1.7 14.1 2.0 3.5 3.6 1.8 1.7 1.7 2.9 7.6 1.9 100 3.5 1.1 11.9 2.0 2.7 3.1 1.4 1.2 18.3 2.5 6.5 1.5 100 3.9 nh 10.9 13.9 2008Q2 17.2 11.2 13.6 2008Q3 16.0 10.5 13.9 2008Q4 16.8 7.7 15.4 7.0 2009Q1 19.5 6.7 13.9 8.1 4.8 2009Q2 16.7 5.0 10.3 7.5 4.8 2009Q3 21.2 5.9 14.0 9.1 6.1 1.9 14.5 2.1 3.2 3.1 1.7 1.6 2.1 1.0 7.2 1.6 100 2009Q4 23.1 6.2 13.3 8.7 6.9 3.8 2.1 13.1 2.4 3.6 2.8 1.6 1.7 1.4 1.2 6.4 1.6 100 2010Q1 20.4 5.8 13.4 9.1 5.7 4.1 1.8 2.5 3.5 3.4 1.6 2.0 1.5 3.1 6.6 1.8 100 2010Q2 21.3 5.6 13.1 9.7 5.3 4.4 1.8 14.2 2.8 3.8 1.7 1.6 1.4 2.3 7.1 1.7 100 2010Q3 21.7 4.9 13.5 10.6 5.3 3.9 1.8 15.6 2.2 3.0 2.5 1.9 1.4 1.7 1.5 6.6 1.8 100 2010Q4 22.6 3.7 13.0 10.9 5.3 4.9 1.9 13.4 3.4 3.7 3.4 1.7 1.6 1.3 1.1 6.3 1.8 100 n 8.0 va 18.3 n ua al pl 2008Q1 fu oi at z z 13.8 vb 2.3 k jm ht gm Note: CNY: China Yuan, SGD: Singapore Dollar, JPY: Japanese Yen, KRW: Korean Won, THB: Thai Bath, MYR: Malaysian om l.c Ringgit, HKD: Hongkong Dollar, USD: United States Dollar, IDR: Indonesian Rupiah, EUR1: currency of Germany; AUD: Australian Dollar, GDP: Great Britain Pound, EUR2: currency of France; RUB: Russian Ruble, PHP: Philippine Peso, TWD: Lu an New Taiwan Dollar, EUR3: currency of Netherlands va n y te re ac th si eg cd jg 97 hg n lo ad ju y th yi pl n va oi at nh z z k jm ht vb om l.c gm 2005Q3 2005Q4 2006Q1 2006Q2 2006Q3 2006Q4 2007Q1 2007Q2 2007Q3 2007Q4 2008Q1 2008Q2 2008Q3 2008Q4 2009Q1 2009Q2 2009Q3 2009Q4 2010Q1 2010Q2 2010Q3 2010Q4 REER 102.0 101.0 97.1 100.7 101.7 101.5 97.3 98.6 99.1 98.5 92.1 88.1 85.8 82.4 80.3 89.9 79.1 87.0 88.1 83.8 85.0 90.0 an Lu va n y te re REER 99.93 99.89 100.7 99.27 97.27 97.68 99.92 102.3 95.67 101.0 104.3 104.2 102.5 105.6 108.4 111.4 108.2 105.7 105.1 108.6 104.9 103.2 m ll fu 2000Q1 2000Q2 2000Q3 2000Q4 2001Q1 2001Q2 2001Q3 2001Q4 2002Q1 2002Q2 2002Q3 2002Q4 2003Q1 2003Q2 2003Q3 2003Q4 2004Q1 2004Q2 2004Q3 2004Q4 2005Q1 2005Q2 n ua al TABLE A.6 – VND’s REER (2000=100) ac th si eg cd jg 98 hg t to ng hi ep w APPEDIX B ESTIMATION OUTPUT AND RELEVANT TEST FOR LONG-RUN IMPACT OF REAL EXCHANGE RATE ON TRADE BALANCE Table B.1 – Cointegration rank test by Johansen’s procedure for long-run impact of real exchange rate on trade balance Unrestricted Cointegration Rank Test (Trace) Hypothesized Trace 0.05 No of CE(s) Eigenvalue Statistic Critical Value Prob.** None * 0.428406 34.52429 24.27596 0.0018 At most 0.242131 11.59189 12.32090 0.0660 At most 0.005469 0.224844 4.129906 0.6929 Trace test indicates cointegrating eqn(s) at the 0.05 level * denotes rejection of the hypothesis at the 0.05 level **MacKinnon-Haug-Michelis (1999) p-values n lo ad ju y th yi pl n ua al va n Unrestricted Cointegration Rank Test (Maximum Eigenvalue) Hypothesized Max-Eigen 0.05 No of CE(s) Eigenvalue Statistic Critical Value ll fu oi m Prob.** 0.0077 0.0472 0.6929 at nh None * 0.428406 22.93240 17.79730 At most * 0.242131 11.36705 11.22480 At most 0.005469 0.224844 4.129906 Max-eigenvalue test indicates cointegrating eqn(s) at the 0.05 level * denotes rejection of the hypothesis at the 0.05 level **MacKinnon-Haug-Michelis (1999) p-values z z k jm ht vb gm om l.c Table B.2 – Cointegration equation by Johansen’s procedure for long-run impact of real exchange rate on trade balance Unrestricted Cointegrating Coefficients (normalized by b'*S11*b=I): LTB LREER LGDP -17.83347 2.572132 -3.267495 4.098424 -0.515086 0.370736 1.665768 -4.387898 4.072738 Unrestricted Adjustment Coefficients (alpha): D(LTB) 0.033082 0.012649 -0.003963 D(LREER) -0.017433 0.007537 -0.001474 D(LGDP) -0.003240 -0.011591 -0.000494 Cointegrating Equation(s): Log likelihood 230.0063 n a Lu n va y te re th 99 t to ng hi ep w Normalized cointegrating coefficients (standard error in parentheses) LTB LREER LGDP 1.000000 -0.144231 0.183223 (0.04591) (0.04197) Adjustment coefficients (standard error in parentheses) D(LTB) -0.589966 (0.21610) D(LREER) 0.310891 (0.09850) D(LGDP) 0.057783 (0.07575) Cointegrating Equation(s): Log likelihood 235.6898 Normalized cointegrating coefficients (standard error in parentheses) LTB LREER LGDP 1.000000 0.000000 -0.537980 (0.17591) 0.000000 1.000000 -5.000342 (1.22291) Adjustment coefficients (standard error in parentheses) D(LTB) -0.538124 0.078576 (0.21815) (0.03127) D(LREER) 0.341780 -0.048722 (0.09826) (0.01409) D(LGDP) 0.010279 -0.002364 (0.06869) (0.00985) n lo ad ju y th yi pl n ua al n va ll fu oi m at nh z z k jm ht vb gm om l.c Table B.3 – VEC Granger Causality/Block Exogeneity Wald Tests Dependent variable: D(LTB) Excluded Chi-sq df Prob 0.0232 0.2676 0.0200 Chi-sq 3.598760 0.162302 3.720458 df 2 Prob 0.3082 0.9834 0.7144 n 2 va 9.516811 3.943990 15.03778 n a Lu y th 100 te re D(LREER) D(LGDP) All Dependent variable: D(LREER) Excluded D(LTB) D(LGDP) All t to ng hi ep Dependent variable: D(LGDP) Excluded D(LTB) D(LREER) All Chi-sq 3.597069 4.879888 7.35745 df 2 Prob 0.1923 0.1808 0.1036 w n lo Table B.4 – Output of OLS estimation by ADRL’s approach step Dependent variable is D(LTB) Sample: 2000Q4 2010Q4 Included observations: 41 Coefficient Std Error t-Statistic D(LTB(-1)) -0.103799 0.170042 -1.610434 D(LREER(-1)) -0.756602 0.353554 -2.139993 D(LREER(-2)) -0.798593 0.363008 -2.199930 LTB(-1) -0.504347 0.187089 -2.695755 LREER(-1) 0.105417 0.056184 1.876286 LGDP(-1) -0.123431 0.056949 -2.167397 R-squared 0.408700 Mean dependent var Adjusted R-squared 0.324228 S.D dependent var S.E of regression 0.077707 Akaike info criterion Sum squared resid 0.211341 Schwarz criterion Log likelihood 49.81449 Hannan-Quinn criter Durbin-Watson stat 1.877972 ad ju y th yi pl n ua al n va ll fu oi m at nh z z Prob 0.0755 0.0394 0.0345 0.0107 0.0690 0.0371 -7.18E-05 0.094528 -2.137292 -1.886526 -2.045977 k jm ht vb om l.c gm n a Lu n va y te re th 101 t to ng hi ep w APPEDIX C ESTIMATION OUTPUT OF JOHANSEN’S COINTEGRATION TEST FOR LONG-RUN IMPACT OF REAL EXCHANGE RATE ON EXPORTS AND IMPORTS Table C.1 – Coinegration equation for export Standard errors in ( ) & t-statistics in [ ] Cointegrating Eq: CointEq1 LX(-1) 1.000000 LREER(-1) -0.611787 (0.19445) [-3.14629] LGDP(-1) -2.563826 (0.07735) [-33.1473] C 6.767039 n lo ad ju y th yi pl n ua al n va ll fu Table C.2 – Cointegration equation for imports Standard errors in ( ) & t-statistics in [ ] Cointegrating Eq: CointEq1 LI(-1) 1.000000 LREER(-1) 0.173554 (0.103985) [-1.5784] LGDP(-1) -2.494924 (0.12029) [-20.7410] C 2.580962 oi m at nh z z k jm ht vb om l.c gm n a Lu n va y te re th 102 t to ng hi ep w APPEDIX D OUTPUT OF ECM MODELS ESTIMATION BASED ON COINTEGRATING EQUATION OBTAINED BY JOHANSEN’S PROCEDURE AND ARDL APPROACH Table D.1 - Output of ECM models based on cointegration obtained by Johansen’s procedure Standard errors in ( ) & t-statistics in [ ] Cointegrating Eq: CointEq1 LTB(-1) 1.000000 -0.144231 LREER(-1) (0.04591) [-3.14178] 0.183223 LGDP(-1) (0.04197) [ 4.36599] Error Correction: D(LTB) D(LREER) D(LGDP) -0.589966 0.310891 0.057783 CointEq1 (0.21610) (0.09850) (0.07575) [-2.73002] [ 3.15626] [ 0.76283] -0.05095 -0.212498 -0.073413 D(LTB(-1)) (0.04994) (0.09022) (0.06938) [-1.2122] [-2.35527] [-1.05809] 0.142607 -0.206989 -0.047315 D(LTB(-2)) (0.16055) (0.07318) (0.05628) [ 0.88825] [-2.82856] [-0.84078] -0.632620 -0.464461 -0.067220 D(LREER(-1)) (0.34358) (0.15661) (0.12043) [-1.84124] [-2.96580] [-0.55815] -0.667363 -0.197518 0.084506 D(LREER(-2)) (0.35636) (0.16243) (0.12491) [-1.87272] [-1.21602] [ 0.67653] 0.061838 -0.132887 0.011631 D(LGDP(-1)) (0.35481) (0.16172) (0.12437) [ 0.17428] [-0.82169] [ 0.09352] 0.194184 -0.046510 0.490063 D(LGDP(-2)) (0.23559) (0.10738) (0.08258) [ 0.82425] [-0.43313] [ 5.93457] R-squared 0.427287 0.335671 0.469845 n lo ad ju y th yi pl n ua al n va ll fu oi m at nh z z k jm ht vb om l.c gm n a Lu n va y te re th 103 t to ng hi ep w n 0.218437 0.042527 0.035366 2.863249 82.68301 -3.691854 -3.399293 -0.002609 0.040005 4.72E-09 2.69E-09 230.0063 -10.04909 -9.046021 lo Adj R-squared 0.326220 Sum sq resids 0.204698 S.E equation 0.077592 F-statistic 4.227764 Log likelihood 50.46926 Akaike AIC -2.120452 Schwarz SC -1.827891 Mean dependent -7.18E-05 S.D dependent 0.094528 Determinant resid covariance (dof adj.) Determinant resid covariance Log likelihood Akaike information criterion Schwarz criterion ad ju y th 0.376288 0.025150 0.027197 5.022026 93.45130 -4.217136 -3.924575 0.018870 0.034438 yi pl n ua al va based on n Table D.2 - Output of OLS estimation for ECM models cointegration obtained by Johansen’s procedure Dependent variable is D(LTB) Sample: 2000Q4 2010Q4 Included observations: 41 Regressor Coefficient Std Error t-Statistic EC(-1) -0.451492 0.158637 -2.846070 D(LTB(-1)) -0.135307 0.106575 -1.516419 D(LREER(-1)) -0.798601 0.322263 -2.478104 D(LREER(-2)) -0.839200 0.334909 -2.505757 R-squared 0.451493 Mean dependent var Adjusted R-squared 0.352965 S.D dependent var S.E of regression 0.076036 Akaike info criterion Sum squared resid 0.213917 Schwarz criterion Log likelihood 49.56615 Hannan-Quinn criter Durbin-Watson stat 1.879083 ll fu oi m at nh z z k jm ht vb om l.c gm Prob 0.0072 0.0731 0.0179 0.0167 -7.18E-05 0.094528 -2.222739 -2.055561 -2.161862 n a Lu y te re th 104 n va Table D.3 - Breusch-Godfrey Serial Correlation LM Test of output in table D.2 F-statistic 0.429052 Prob F(4,33) 0.7866 Obs*R-squared 1.659929 Prob Chi-Square(4) 0.7980 Dependent Variable: RESID Sample: 2000Q4 2010Q4 t to ng hi ep Included observations: 41 Presample missing value lagged residuals set to zero Regressor Coefficient Std Error t-Statistic EC(-1) -0.158239 0.267427 -0.591709 D(LTB(-1)) -0.020502 0.435879 -0.047036 D(LREER(-1)) 0.065514 0.381706 0.171636 D(LREER(-2)) -0.073241 0.427717 -0.171238 RESID(-1) 0.198029 0.512290 0.386557 RESID(-2) 0.164988 0.330999 0.498455 RESID(-3) -0.067740 0.195488 -0.346515 RESID(-4) -0.148001 0.207409 -0.713570 R-squared 0.040486 Mean dependent var Adjusted R-squared -0.163047 S.D dependent var S.E of regression 0.078498 Akaike info criterion Sum squared resid 0.203342 Schwarz criterion Log likelihood 50.60548 Hannan-Quinn criter Durbin-Watson stat 1.968945 w Prob 0.5581 0.9628 0.8648 0.8651 0.7016 0.6215 0.7312 0.4805 0.006976 0.072788 -2.078316 -1.743961 -1.956562 n lo ad ju y th yi pl n ua al n va ll fu oi m at nh Table D.4 – Ramsay RESET test of output in table D.2 F-statistic 0.084610 Prob F(1,36) Log likelihood ratio 0.096249 Prob Chi-Square(1) Dependent Variable: D(LTB) Sample: 2000Q4 2010Q4 Included observations: 41 Coefficient Std Error t-Statistic EC(-1) -0.452734 0.160693 -2.817378 D(LTB(-1)) -0.136348 0.158589 -0.859759 D(LREER(-1)) -0.802151 0.326553 -2.456419 D(LREER(-2)) -0.855907 0.343960 -2.488394 FITTED^2 0.532812 1.831733 0.290878 R-squared 0.402896 Mean dependent var Adjusted R-squared 0.336551 S.D dependent var S.E of regression 0.076995 Akaike info criterion Sum squared resid 0.213416 Schwarz criterion Log likelihood 49.61427 Hannan-Quinn criter Durbin-Watson stat 1.881438 z 0.7728 0.7564 z k jm ht vb n a Lu n va y te re th 105 om l.c gm Prob 0.0078 0.3956 0.0190 0.0176 0.7728 -7.18E-05 0.094528 -2.176306 -1.967334 -2.100210 t to ng hi ep w APPDEDIX E NARAYAN’S NEW SET OF CRITICAL VALUES FOR THE BOUNDS F-TEST Source: Paresh Kumar Narayan (2004) TABLE E.1 – Critical values for the bound test: Case II: restricted intercept and no trend – percent level n lo ad ju y th yi pl n ua al n va ll fu oi m at nh z z k jm ht vb TABLE E.2 – Critical values for the bound test: Case II: restricted intercept and no trend - percent level om l.c gm n a Lu n va y te re th 106 t to TABLE E.3 – Critical values for the bound test: Case II: restricted intercept and no trend - 10 percent level ng hi ep w n lo ad ju y th yi pl n ua al n va ll fu oi m TABLE E.4 – Critical values for the bound test: Case III: restricted intercept and trend - percent level at nh z z k jm ht vb om l.c gm n a Lu n va y te re th 107 t to TABLE E.5 – Critical values for the bound test: Case III: restricted intercept and trend - percent level ng hi ep w n lo ad ju y th yi pl n ua al n va ll fu oi m at nh TABLE E.6 – Critical values for the bound test: Case III: restricted intercept and trend - 10 percent level z z k jm ht vb om l.c gm n a Lu n va y te re th 108