Ước lượng mức dự trữ ngoại hối tối ưu của việt nam tt tiếng anh

MINISTRY OF EDUCATION AND TRAINING THE STATE BANK OF VIETNAM BANKING UNIVERSITY HOCHIMINH CITY ***** TRAN VUONG THINH ESTIMATION OF VIETNAMESE OPTIMUM RESERVES SUMMARY OF DOCTORAL THESIS IN ECONOMICS Major: Finance - Banking Code: 9.34.02.01 Supervisor: ASSOC.PROF., PH.D LE PHAN THI DIEU THAO HOCHIMINH CITY – 2020 SUMMARY With the important role of reserves, nations try to increase reserves more and more and cause much opportunity cost because of the low profit from investing reserves Therefore, many economic scholars research to estimate the optimum reserves of a nation Under this circumstance, there are three main and popular estimation method including method based on rule of thumb, method based on the determinants of reserves, method based on the cost – benefit of reserves The research objective of the thesis is to select the method of estimating the optimum reserves appropriate to Vietnam in three above method and give some suitable policy implications for government authorities Through using Vietnamese quarterly and yearly data in the period of 2005 – 2017 together with the qualitative methods such as description, analysis, comparison and the quantitative methods like ARCH, ADF, OLS, HP Filter, ARDL, the thesis experiments upon Vietnam with three above method The empirical result of all three methods comes to a conclusion that in the end of research period, the optimum reserves approximates the actual reserves Then Vietnam needs continuing to increase reserves but shouldn’t push strongly the increasing speed At the same time, the thesis points that the method based on the cost – benefit of reserves is appropriate to apply in Vietnam at the present period Then the thesis gives some policy implications to Vietnam such as improving the method of calculating the variables in the estimation model, estimating in advance the optimum reserves of next year, both controlling the optimum reserves and increasing the actual reserves Keywords: reserves, optimum reserves CHAPTER 1: RESEARCH INTRODUCTION 1.1 The necessity of research Reserves is always interested in by governments because its roles are to manage the exchange rate towards governments’ desire and to prevent the appearance of sudden shocks which make vulnerable the domestic economy Therefore, reserves in the world and in Vietnam increase continuously during the last years However, the reserves assets must have the high safety and liquidity, so their profitability is much lower than the high-risk assets Then, holding reserves makes the holding cost which is called as the opportunity cost From the above, a nation which tries to hold much reserves maybe is not good and it should only hold at the enough level for nation’s needs because the extra reserves used for the necessary activities can raise the effectiveness of economy So how much reserves should a nation hold so that it becomes suitable, adequate or optimum? Many researches try to estimate the nation’s optimum reserves and there are three outstanding main methods including method based on rule of thumb, based on the determinants of reserves, based on the cost – benefit of reserves With the methods based on rule of thumb, the optimum reserves is estimated according to rule of thumb and applied the same to all nations in the world At first, it needs to list the traditional estimation methods including the one based on import turnover originated from the research in 1958 (Wijnholds and Kapteyn, 2001), the method based on short-term external debt proposed by Greenspan (1999), the method based on broad money supply M2 raised by Kaminsky (1999) and Wijnholds and Kapteyn (2001), the method based on GDP originated from Jeanne and Ranciere (2006) In addition, many methods linked the traditional methods also appear such as the extended Greenspan-Guidotti method or the method including three above traditional methods and taking total proposed by Shcherbakov (2002) In 2011, IMF raised the method estimating optimum reserves for emerging countries called as the ARA EM method and up to 2016, IMF officially instructed to apply this method For traditional methods, Vietnam also applied through the researches of Nguyen Thi Xuan Phuong (2012), Le Thi Tuan Nghia and Pham Thi Hoang Anh (2013) or Tran Kim Anh (2018) The another method is the method based on the determinants of reserves to build the reserves-demand function and estimate optimum reserves Among the researches following this method, the research of Edison (2003) is acknowledged and applied by many following researches because this research builds the reserves-demand function including five determinants covering almost all reserves - influencing aspects with the data of 122 countries in the period of 1980 – 2002 In Vietnam, there are a few of researches applying this method, such as the research of student group at University of Economics Hochiminh City which attended the scientific research contest named “The 2010 young economist” The third estimation method is the method based on the cost – benefit of reserves The pioneer of this method is Heller (1966) and his method is much applied by the following researches In these ones, there are two remarkable models including the model of Frankel and Jovanovic (1981) and the model of Ben-Bassat and Gottlieb (1992) For Vietnam, the government’s regulation of optimum reserves is completely not yet done The Decree No 50/2014/NĐ-CP about reserves management only requires The State Bank establish the reserves limit in investing suitably reserves to ensure the safety, liquidity and profitability This Decree has not yet mentioned the determination of optimum reserves by The State Bank Because the optimum reserves has not yet much been interested in Vietnam, the author finds some gaps in the space of research about optimum reserves as follows: (i) up to now, the author has not yet found any Vietnamese documents or researches fully presenting the theory of optimum reserves and methods of estimating optimum reserves (ii) the ARA EM method for emerging countries is appropriate to apply to Vietnam but the author has not yet found any Vietnamese researches experimenting with this method (iii) the model of Ben-Bassat and Gottlieb (1992) including sovereign risk – a characteristic of developing countries – is also suitable for applying to Vietnam but the author has also not yet found any Vietnamese researches experimenting with this method Therefore, the research about optimum reserves in Vietnam is very necessary This is the reason why the author decides to choose the research “Estimation of Vietnamese optimum reserves” as the name of the author’s doctoral thesis Through this research, the author hopes that Vietnam only holds the optimum reserves, being suitable with the Vietnamese economic condition in each period and invest the extra resources into the other necessary activities to foster the nation’s growth 1.2 Research objectives The overall research objective is to select the suitable method of estimating optimum reserves to Vietnam and then propose some policy implications to government authorities basing on the experiment result of the selected method To complete the overall objectives, the thesis needs to obtain the detail objectives: Firstly, the thesis clarifies three main methods of estimating optimum reserves in the world at present Secondly, basing on the Vietnamese economic data and situation, the thesis estimates Vietnamese optimum reserves according to the methods based on rule of thumb, based on the determinants of reserves, based on the cost – benefit of reserves Thirdly, the thesis selects the suitable method of estimating optimum reserves to Vietnam in three methods With the experiment results of the selected method and comparing the optimum reserves with the actual reserves, the thesis proposes some policy implications to government authorities 1.3 Research questions With the above detail research objectives, the research questions are raised in turn as folows: First, how are three main methods of estimating optimum reserves in the world at present carried out? Second, basing on the Vietnamese economic data and situation, when estimating optimum reserves: which the suitable measure methods does it need to carry out for the method based on rule of thumb? How does it need to build and carry out the model for the method based on the determinants of reserves? How does it need to use the way to experiment model for the method based on the cost – benefit of reserves? Third, which method in three main methods is suitable with Vietnam? Which policy implications concerning the experiment results of the suitable method should be proposed to government authorities? 1.4 Research object and scope Research object of the thesis is to estimate optimum reserves Research scope is Vietnam during the period of 2005 – 2017 1.5 Research methods and data The thesis uses qualitative methods such as listing, analyzing, comparing, synthesizing the previous theories and researches for reaching the first and the third detail objectives as well as a part of the second detail objective The thesis also uses quantitative methods for obtaining the second detail objective including: (i) the way of analyzing the simple indicators for the method based on rule of thumb (ii) the econometric methods like ARCH, HP Filter, ADF test, OLS regression and ARDL model are done by Stata 13.0 software for two methods based on the determinants of reserves and based on the cost – benefit of reserves The overall research process is displayed in the Figure 1.1 The research data is collected in yearly and quarterly data during the period of 2005 – 2017 for 11 types of data including reserves, import turnover, export turnover, foreign portfolio investment, short-term external debt, broad money supply M2, nominal GDP, VND/USD exchange rate, fiscal deficit, lending rate of VND, 3month LIBOR rate of USD These types of data are collected from the prestigious sources such as IFS, Bloomberg, ADB, Worldbank, CEIC Data, ICE, General Statistics Office of Vietnam (GSO), The State Bank, The Ministry of Finance 1.6 New findings of the thesis In the academic aspect, (i) Basing on synthesizing the theory of optimum reserves from the researches all over the world, the thesis presents clearly the theory about three main methods of estimating optimum reserves which has not yet systematized in Vietnam by the previous researches Three main methods include method based on rule of thumb, based on the determinants of reserves, based on the cost – benefit of reserves Therefore, thesis contributes to enrich the theory of optimum reserves for Vietnamese economic academic basis ESTIMATION OF VIETNAMESE OPTIMUM RESERVES The previous involving researches and the theory about estimating optimum reserves The method based on rule of thumb The method based on the determinants of reserves The method based on the cost – benefit of reserves The real situation and Vietnamese economic data Experiment of three traditional methods and ARA EM method Build reserves-demand function, the independent variables are the determinants Build the research model based on the model of BenBassat and Gottlieb (1992) Using the yearly data and optimum standards based on rule of thumb Using the quarterly data and the ARCH method, ADF test, OLS regression Using the quarterly data and the methods of HP Filter, ARCH, ADF, ARDL Estimating Vietnamese optimum reserves and comparing actual reserves Discussion of the research results Selecting the suitable method to Vietnam Policy implications for Vietnam basing on the selected method Figure 1.1 The research process of the thesis Source: The author’s synthesis (ii) the ARA EM method proposed by IMF and the method of Ben-Bassat and Gottlieb (1992) are the methods of estimating optimum reserves which the author has not yet found at any previous researches and experiments in Vietnam By carrying out these two methods in Vietnam, the thesis supplies the Vietnamese experiment evidences of two methods for the field of optimum reserves in the world academic basis In the practical aspect, (i) the ARA EM method proposed on the data of emerging countries The method of Ben-Bassat and Gottlieb (1992) designs the model based on a characteristic of developing countries – sovereign risk Therefore, these two methods are suitable for experimenting in Vietnam Besides, the method based on the determinants of reserves shows the linkage with nation’s particular situation in each period, so it is also suitable for experimenting in Vietnam Through these experiments, the thesis supplies some methods of estimating optimum reserves and help Vietnam have more selections in determining optimum reserves (ii) With the optimum reserves from the experiment results of three methods and compared with the actual reserves, all of them come to the general conclusion that Vietnam should continue to increase reserves but needs to follow the plan and is not necessary to push strongly the speed of cumulating reserves Basing on this conclusion, the thesis proposes the appropriate policy implications to government authorities in order to use effectively the nation’s resources 1.7 The structure of the thesis: The thesis includes chapters: Chapter 1: Research introduction Chapter 2: Theory of estimating optimum reserves Chapter 3: Model of estimating Vietnamese optimum reserves Chapter 4: Results of estimating Vietnamese optimum reserves Chapter 5: Conclusions and policy implications for Vietnam CHAPTER 2: THEORY OF ESTIMATING OPTIMUM RESERVES 2.1 Foreign exchange reserves (Reserves) 2.1.1.Concept of foreign exchange Foreign exchange is the facilities of international payment including foreign currencies, valuable papers in foreign currency, international - standard gold and domestic currency in international payment 2.1.2 Concept of reserves According to IMF (2009), reserves is the external assets which are available and controlled by nation’s monetary authorities for meeting the financing needs and equilibrating the balance of payments, for intervening in forex market to impact on the exchange rate and for other related purposes 2.1.3 Sources of reserves Including kinds of resources: receiving the SDR allocation from IMF basing on the nation’s level of contributing to IMF; drawing reserves from IMF if there is reserves position in IMF; making increase of purchasing foreign currencies, gold and valuable papers by money inflows of current account and financial account 2.1.4 Reason for the necessity of holding reserves The Impossible Trinity originated from Frankel, J.A in 1999 is the reason Frankel (1999) says that according to the global trend of integration, nations can choose the neutral model Then, reserves can help nations control the fluctuation of exchange rate in the determined limitation 2.1.5 Roles of reserves Two main roles is to affect the exchange rate for stabilizing current account (mercantile motivation) and to finance for 22 From 2012, Vietnamese economy starts to recover again and although the yearly average speed of reserves growth in this period is fairly high at 18.69%, it surpasses a little the yearly average speed of import growth at 15.56% Hence, reserves has not yet caught import In the end of research period – 2017, the actual reserves is at 2.7 months of import turnover and nearly reaches the optimum level 60,000,000,000 USD 50,000,000,000 40,000,000,000 30,000,000,000 20,000,000,000 10,000,000,000 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 ACTUAL RESERVES OPTIMUM RESERVES Chart 4.3 Vietnamese actual reserves and optimum reserves based on import turnover in the period of 2005 – 2017 Source : IFS (2018) and author’s calculation 4.2.1.2 The method based on short-term external debt 60,000,000,000 USD 50,000,000,000 40,000,000,000 30,000,000,000 20,000,000,000 10,000,000,000 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 ACTUAL RESERVES OPTIMUM RESERVES Chart 4.5 Vietnamese actual reserves and optimum reserves based on short-term external debt in the period of 2005 – 2017 Source : IFS, World Bank (2018) and author’s calculation 23 Chart 4.5 shows that Vietnamese reserves always surpasses the optimum level during all period of 2005 – 2017 It happens because Vietnamese short-term external debt in this period is not much and reserves is enough ability to finance 100% short-term debt However, this debt is increasing sharply at present and in the future Specifically, in 2017, the speed of short-tern external debt growth is 56.34% to last year Therefore, although actual reserves is higher than the optimum level, it has not yet completely safe and it should continue to increase reserves for being enough ability to finance short-term external debt in the future 4.2.1.3 The method based on broad money supply M2 80,000,000,000 70,000,000,000 USD 60,000,000,000 50,000,000,000 40,000,000,000 30,000,000,000 20,000,000,000 10,000,000,000 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 ACTUAL RESERVES OPTIMUM RESERVES Chart 4.7 Vietnamese actual reserves and optimum reserves based on broad money supply M2 in the period of 2005 – 2017 Source : IFS, CEIC Data (2018) and author’s calculation Chart 4.7 indicates that in the period of 2005 – 2008, the actual reserves exceeds the optimum level However, in the period of 2009 – 2017, the actual reserves is much lower than the optimum reserves Although reserves recovers with the strong yearly average speed of growth at 18.69% during this period but this speed is not much higher than the average speed of M2 growth at 16.10% , so reserves cannot catch up M2 This makes during the time of after crisis in 2008, the actual reserves is always lower 24 than the optimum level but the difference narrows more and more towards the end of research period 4.2.2 IMF’s ARA EM method 60,000,000,000 USD 50,000,000,000 40,000,000,000 30,000,000,000 20,000,000,000 10,000,000,000 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 ACTUAL RESERVES OPTIMUM RESERVES Chart 4.8 Vietnamese actual reserves and optimum reserves based on ARA EM method in the period of 2005 – 2017 Source : IFS, World Bank, CEIC Data, Bloomberg (2018) and author’s calculation Chart 4.8 shows that in the period of 2005 – 2009, the actual reserves surpasses the optimum level Like the method based on import turnover and based on M2, in the period of 2010 – 2017, the actual reserves is always lower than the optimum reserves but in 2017, the actual reserves is approximate to the optimum reserves, higher than 1.3 billion USD frankly However, the decline in this method does not change irregularly and the actual and optimum reserves are closer than the ones in traditional methods It happens because the ARA EM method includes all elements in all traditional methods to calculate the optimum reserves and so the ARA EM method becomes more credible than traditional methods 4.3 Results of the method based on determinants of reserves After calculating the variables of the empirical model, especially the variables of export volatility and exchange rate volatility 25 measured by standard deviation based on ARCH method as well as carrying out the descriptive statistic for all variables, the author make the stationarity tests of variables Table 4.3 Result of stationarity test for variables by ADF Minimum AIC Optimum lag Z(t) value in ADF test Stationary order lnres lngdp -75.87053 -89.05960 -1.508 -1.609 I(0)* I(0)* open -67.87717 -2.208 I(0)** expv fpi erv cost -184.5335 -135.8176 -283.9034 -283.1703 -2.627 -3.389 -1.400 -1.547 I(0)*** I(0)*** I(0)* I(0)* Variable Source: Extracted results in Stata 13.0 software Table 4.3 indicates that all variables are stationary when doing the ADF test for the form of random walk with drift Consequently, OLS regression is suitable for determining reserves-demand function and forecasting in the long run Table 4.5 Result of the final OLS regression of the model Independent variables coeffi cients constant lngdp expv fpi erv cost 4.985764 0.7826921 -1.822864 1.930064 1.777098 -6.102439 [1.97]* [7.72]*** [-3.39]*** [8.53]*** [3.80]*** [-6.94]*** R2 = 0.8794 Adjusted R2 = 0.8663 Prob (F- Statistic) = 0.0000 (F value = 67.08) Source: Extracted results in Stata 13.0 software 26 Table 4.5 shows that the coefficients of independent variables and the constant are significant Moreover, positive and negative signs of the coefficients are correct to the theory expectation analyzed in Chapter R2 of regression equation is fairly high at 87.94% indicates that the empirical model is suitable for applying to Vietnam The diagnostic tests states that the model has no multicollinearity and heteroscedasticity Autocorrelation exists but is not much serious and it is repaired by Newey-West covariance matrix The reserves-demand function to estimate optimum reserves is displayed as follows: lnrest = 4.985764 + 0.7826921* lngdpt - 1.822864 * expvt +1.930064 * fpit + 1.777098 * ervt - 6.102439 * costt (4.3) 4.3.6 Estimation of Vietnamese optimum reserves Basing on the reserves-demand function (4.3), the optimum reserves is estimated and compared with the actual reserves through Chart 4.9 60,000,000,000 50,000,000,000 40,000,000,000 30,000,000,000 20,000,000,000 10,000,000,000 ACTUAL RESERVES Q4.2017 Q1.2017 Q2.2016 Q3.2015 Q4.2014 Q1.2014 Q2.2013 Q3.2012 Q4.2011 Q1.2011 Q2.2010 Q3.2009 Q4.2008 Q1.2008 Q2.2007 Q3.2006 Q4.2005 Q1.2005 OPTIMUM RESERVES Chart 4.9 Vietnamese actual reserves and optimum reserves based on determinants of reserves in the period of 2005 – 2017 Source: IFS (2018) and author’s calculation 27 Chart 4.9 indicates that before 2008, the actual reserves is similar or higher than the optimum level However, in the period of 2009 – 2011, under the influence of 2008 crisis, Vietnamese actual reserves drops sharply and much lower than the optimum reserves During the period of 2012 – 2017, Vietnamese economy recovers and Vietnamese reserves increases gradually, so almost time in this period, the actual reserves is approximate or surpasses the optimum reserves In the end of research period – Q.4/ 2017, the actual reserves exceeds the optimum level but the surplus is not considerable 4.4 Results of the method based on the cost - benefit of reserves 4.4.1 Determining the opportunity cost : is represented by the lending rate of VND 4.4.2 Determining the loss due to country’s default HP Filter method is used for calculating the potential GDP with quarterly frequency ( = 1600) during the period of 2005 – 2017 in the trend of continuous growth, without the influence of 2008 crisis It is displayed in the Chart 4.11 Q1.2005 Q3.2005 Q1.2006 Q3.2006 Q1.2007 Q3.2007 Q1.2008 Q3.2008 Q1.2009 Q3.2009 Q1.2010 Q3.2010 Q1.2011 Q3.2011 Q1.2012 Q3.2012 Q1.2013 Q3.2013 Q1.2014 Q3.2014 Q1.2015 Q3.2015 Q1.2016 Q3.2016 Q1.2017 Q3.2017 80.000000 70.000000 60.000000 50.000000 40.000000 30.000000 20.000000 10.000000 - ACTUAL GDP POTENTIAL GDP Chart 4.11 Vietnamese actual and potential GDP in the period of 2005 – 2017 Source: GSO (2018) and author’s calculation 28 Chart 4.11 shows that in almost decreased period of Q1/ 2008 – Q2/ 2013, the actual GDP is under the potential GDP line The difference between total actual GDP and total potential GDP during this period is USD 8,582,103,000, as proxy for the loss due to country’s default 4.4.3 Determining of the probability of default After calculating the variables of the risk premium model, especially the volatility of foreign portfolio investment measured by standard deviation basing on ARCH method as well as carrying out the descriptive statistic for all variables, the stationarity tests of variables by ADF are made and the result is in the Table 4.10 Table 4.10 Result of stationarity test for variables by ADF Variable Minimum AIC Optimum lag Z(t) value in ADF test Stationary order lnriskp -80.32931 -4.026 I(1)*** open -67.86557 -2.207 I(0)** fpiv 45.41102 -3.696 I(0)*** lnstexd -32.18169 -1.638 I(0)* fd -209.9267 -2.922 I(0)*** Source: Extracted results in Stata 13.0 software According to Table 4.10, the variables are not stationary at the same order Consequently, ARDL model is suitable for doing regression and determining the long run equation which is considered as the risk premium model Table 4.11 indicates that all coefficients are significant and their positive and negative signs are correct to the theory expectation of variable signs 29 Table 4.11 Long run equation in the ARDL model Independent variables Coeffic ients Time trend open fpiv lnstexd fd - 0.0893224 2.434472 - 0.1635649 0.8303476 13.198 [-6.26]*** [2.58]** [-6.72]*** [6.89]*** [2.46]** R2 = 0.8018 Adjusted R2 = 0.6673 Source: Extracted results in Stata 13.0 software With the diagnostic tests like the bounds test heteroscedasticity test, autocorrelation test, the white noise of residuals, the cumulative sum of square of recursive residuals, the model satisfies all and becomes reliable to forecast Therefore, the risk premium model is determined as follows: lnriskpt = - 0.0893224* time + 2.434472*opent - 0.1635649*fpivt + 0.8303476*lnstexdt + 13.198*fdt (4.4) Basing on the equation (4.4), probability of default is calculated 4.4.4 Determining of the marginal probability of default Taking derivative under reserves R of the equation (4.4) and getting the marginal probability of default ( R) as follows: R = - π (1 − ) (4.7) 4.4.5 Estimation of Vietnamese optimum reserves Taking the equation (4.7) into the equation (2.14), the optimum reserves can be written: * = − ∗ (4.8) 30 The model (4.8) implies that Vietnamese optimum reserves has the positive relationship with the loss due to country’s default and the probability of default as well as has the negative relationship with the opportunity cost and the actual reserves ACTUAL RESERVES Q4.2017 Q1.2017 Q2.2016 Q3.2015 Q4.2014 Q1.2014 Q2.2013 Q3.2012 Q4.2011 Q1.2011 Q2.2010 Q3.2009 Q4.2008 Q1.2008 Q2.2007 Q3.2006 Q4.2005 90,000,000,000 80,000,000,000 70,000,000,000 60,000,000,000 50,000,000,000 40,000,000,000 30,000,000,000 20,000,000,000 10,000,000,000 Q1.2005 USD With the determined variables in the model (4.8), Vietnamese optimum reserves is calculated and compared with the actual reserves, presented at the Chart 4.13 OPTIMUM RESERVES Chart 4.13 Vietnamese actual reserves and optimum reserves based on the cost - benefit of reserves in 2005 – 2017 Sources: IFS (2018) and author’s calculation According to the Chart 4.3, during the period of 2005 – 2017, the optimum reserves always considerably surpasses the actual reserves There are only two points which the actual reserves exceeds the optimum level The first point is in Q3/ 2008, because the opportunity cost increases strongly, reaches the highest level in all research period, it makes the optimum reserves reduces and is lower than the actual reserves The last point is in the end of research period – Q4/ 2017, the actual reserves raising sharply decreases the optimum reserves and it surpasses the optimum level However, Vietnamese this actual reserves has not yet been safe because during the research period, the actual reserves is always considerably lower than the optimum reserves 31 CHAPTER 5: CONCLUSION AND POLICY IMPLICATIONS FOR VIETNAM 5.1 Conclusions The empirical results for Vietnam of all three methods of estimating optimum reserves indicates that in the end of research period – the end of 2017, the actual reserves is similar to the optimum reserves (maybe higher or lower a little) Therefore, to be safe completely, Vietnam must continue to increase reserves in the future but Vietnam needs to carefully and follows the plan Moreover, Vietnam is not necessary to push quickly the speed of increasing reserves because the actual reserves is approximate to the optimum reserves Besides, for the ARA EM method and the method based on the cost-benefit of reserves through the model of Ben-Bassat and Gottlieb (1992) which have not yet experimented in Vietnam previously, the thesis experiments to supply the empirical evidences in Vietnam of these two methods as well as proposes many ways of estimating optimum reserves to Vietnam, helping The State Bank have more selections to estimate optimum reserves 5.2 Selection of the suitable method of estimating optimum reserves to Vietnam 5.2.1 Selecting conditions Firstly, the selected method must be founded on the scientific and largely-acknowledged theory basis in order to ensure the accuracy and credibility of the estimated optimum reserves Secondly, the selected method must be flexible and reflects the economic situation of each specific country, such as Vietnam at any point or any period 32 Thirdly, the selected method needs to take Vietnamese characteristics into the research model in order to get the high reliance and effect when applying it to Vietnam at present 5.2.2 For the method based on rule of thumb This method does not satisfy the selected conditions to apply to Vietnam because: (i) this method is not founded on the scientific theory basis but based on rule of thumb to establish (ii) the optimum standards not change though applying in any countries (iii) this method does not indicate any Vietnamese characteristics in the present situation when establishing the optimum level 5.2.3 For the method based on the determinants of reserves This method satisfies the second and third selected condition It is displayed clearly when building and carrying out the model to find the reserves-demand function However, this method does not satisfy the first selected condition In other words, it has not yet based on the stable theory basis Therefore, the researches applying this method not unify about the determinants of reserves in the model as well as the way of measuring determinants Consequently, this method should not be selected to apply to Vietnam 5.2.4 For the method based on the cost - benefit of reserves This method satisfies all three conditions and is selected to apply to Vietnam, in details: (i) this method is based on the scientific theory basis which appeared in 1960s (ii) the model of BenBassat and Gottlieb (1992) applied to Vietnam must use the Vietnamese economic data, so this satisfies the second condition (iii) the model of Ben-Bassat and Gottlieb (1992) including sovereign risk satisfies the third condition Actually, the quicklyincreasing external debt is the present hot problem in Vietnam and cared by the Government as well as public Accordingly, the 33 problem of sovereign risk is more interested in and becomes the Vietnamese characteristic at present 5.3 Policy implications for Vietnam 5.3.1 Improving the method of calculating variables in the optimum reserves model based on the cost - benefit of reserves Improving the method of calculating variables in the model of estimating optimum reserves to get the higher accuracy Specifically, the loss due to country’s default can be measured basing on the 1997 and 2008 crises The risk premium model needs to be improved by enlarging the research time, collecting exactly the quarterly data of short-term external debt and interest rate of borrowing external debt, adding more independent variables into the model The opportunity cost can be calculated in many other ways 5.3.2 Estimating in advance the optimum reserves of next year Estimating in advance the optimum reserves of next year to know the amount of reserves which needs to cumulate during all next year This helps The State Bank be active to determine and control the plan of increasing reserves and helps the Government allocate appropriately the nation’s resources 5.3.3 Policy implications for both controlling the optimum reserves and increasing the actual reserves in the future According to the empirical result of selected method for Vietnam, the optimum reserves has positive relationship with the loss due to country’s default and the probability of default as well as has negative relationship with the opportunity cost and the actual reserves Thus policy implications is based on these four variables 34 5.3.3.1 Policy implications from the probability of default Reducing probability of default helps to control and not to increase optimum reserves too high as well as is the good condition for increasing more reserves To reduce probability of default, it needs to impact on four variables in the risk premium model Specifically, it needs to limit import, control short-term external debt, raise the fiscal receivables and reduce the fiscal payables, attract but control foreign portfolio investment 5.3.3.2 Policy implications from the loss due to country’s default To control and decrease the optimum reserves, the loss due to country’s default needs to be reduced To obtain this target, the Government has to push developing the economy with stable intrinsic factors such as controlling inflation well, maintaining firm operation of bank system, managing effectively exchange rate policy, developing largely and deeply financial market, enlarging export market 5.3.3.3 Policy implications from the opportunity cost To increase reserves, it needs to reduce the opportunity cost, or reducing the lending rate of VND with this model Under this situation, the economy is stimulated to develop and this pushes export growth as well as attracts capital flows investing into the country to take the plentiful supply of foreign currency, helping the increase of reserves be more advantageous However, it needs to control suitably the decrease of lending rate of VND because if it is reduced too much, the optimum reserves can raise sharply and thus the actual reserves also must increase At the same time, it also makes inflation so high, causing the exchange rate volatility and the decrease of reserves because reserves is spent for intervening and stabilizing exchange rate 35 5.3.3.4 Policy implications from the actual reserves Increase of the actual reserves can control and reduce the optimum reserves To raise the actual reserves, it needs to raise the reserves sources such as increasing export, attracting foreign direct investment and attracting remittances 5.4 Limitations of the thesis and further research directions Limitations of the thesis include the short research period, the data which has not yet collected fully and this influences the accuracy of the empirical model Basing on these limitations, the proposed further research directions are to enlarge the research period backward to 2000 and to take more the other independent variables into the empirical models LIST OF PUBLIC PAPERS RELATING TO THE RESEARCH RESULT OF THE THESIS Tran Vuong Thinh (2019), Estimation of Vietnamese optimum reserves by traditional methods, Economy and Forecast Review, 13 (05/2019), 21-26 Tran Vuong Thinh & Le Phan Thi Dieu Thao (2019), Vietnamese optimum reserves based on traditional methods and ARA EM method, Financial and Monetary Market Review, 14 (527), 18-25 Tran Vuong Thinh & Le Phan Thi Dieu Thao (2019), Estimation of Vietnamese optimum reserves, Banking Review, 13 (07/2019), 2-9 Tran Vuong Thinh & Le Phan Thi Dieu Thao (2019), Optimum reserves in Vietnam based on the approach of cost-benefit for holding reserves and sovereign risk, Proceedings of international conference named “International Conference on Finance, Accounting and Auditing 2019 (ICFAA 2019)”, National Economics University Publishing House, Hanoi, 2019, 988 - 1001 ... Vietnamese optimum reserves” as the name of the author’s doctoral thesis Through this research, the author hopes that Vietnam only holds the optimum reserves, being suitable with the Vietnamese... Vietnam, there are a few of researches applying this method, such as the research of student group at University of Economics Hochiminh City which attended the scientific research contest named... is appropriate to apply to Vietnam but the author has not yet found any Vietnamese researches experimenting with this method (iii) the model of Ben-Bassat and Gottlieb (1992) including sovereign