Tóm tắt Luận án The impact of cny/usd exchange rate to Vietnamese macroeconomic factors

Nội dung tài liệu: Tóm tắt Luận án The impact of cny/usd exchange rate to Vietnamese macroeconomic factors

1. 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
2. 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. Trang 1
3. 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 Trang 2
4. 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. Trang 3
5. 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. Trang 4
6. The Mundell-Fleming model is a combination between Fleming's equation with Mundell's policy analysis. These theoretical studies show that the effectiveness of monetary policy and fiscal policy depends on the exchange rate regime and the level of capital controls. Market commodity balancing is made through the appreciation of the currency, not production increasing. The Impossible Trinity or Triangle of Impossibility states that a country can not simultaneously implement three macroeconomic objectives: exchange rate stabilization, capital liberalization, independent monetary policy. The Mundell-Fleming model and The Impossible Trinity are relatively appropriate for Vietnam's monetary policy and fiscal policy. Because those theories meet the conditions of the economy as the price does not change much in the short term and the capital is freely circulated. In addition, this model is suitable for the small and open economy, where can not be affected by world interest rates as well as the output of other economies. 2.3. EMPIRICAL RESEARCHES The current ERPT study, the relationship between exchange rate and price, or exchange rate and inflation are done by Carthy (1999), Grauwe & ctg (2005) The Goldfay & ctg (2000); Ito & ctg (2005) ... Some other studies tend to analyze fixed or floating exchange rate regime policy such as Frenkel, 2012; Reinhart, 2004; Donald, 2007, Kato, 2007 ... In Vietnam, most of studies analyzed the exchange rate transmission mechanism uch as Truong Van Phuoc & et al (2005), Tran Ngoc Tho et al (2012). Other studies have analyzed the effect of CNY on other currencies such as Shu & ctg (2007); Kinnon & ctg (2003); Henning (2012) ... In Vietnam, researches by Le Xuan Sang (2013); Nguyen Quoc Thai (2013) reviews the internationalization of CNY and its impact to Vietnam's financial instability. Thus it is important to study the role of CNY, but these studies are only focused on situational analysis, and does not quantify the specific impact on the economy. International studies on the USD fixed exchange rate regime and the impact of a third currency exchange rate shock on a particular country’s macroeconomy have been done many times such as Kinnon & ctg (2003), Ibarahim (2007) ). Research samples use developed countries or countries with market economies, but Vietnam is not mentioned. Therefore, a research needs to be Trang 5
7. intensive and combined several factors for more comprehensive results. It is explained that calculating and quantifying the magnitude of impact of exchange rate shocks on macroeconomic factors are required. Furthermore, the study applies theoretical foundations to economic conditions such as Vietnam to see if the results are consistent with previous empirical studies. The results are used for policy recommendations. CHAPTER 3: THE IMPACT OF USD/VND EXCHANGE RATE TO MACROECONOMIC FACTORS IN VIETNAM 3.1. INTRODUCTION East Asian countries (except Japan) choose the fixed exchange rate regime in USD. With this regime, which helps Vietnam's economy avoiding exchange rate shocks or not; and how much this impact is, will be solved by the results of the research. 3.2. USD/VND EXCHANGE RATE POLICY IN VIETNAM • 1999-2006 In this period, because of the application of the fixed exchange rate regime, the average interbank exchange rate announced by the State Bank was around from 14,000 VND / USD to 16,000 VND / USD. In 2005, the State Bank of Vietnam (SBV) announced the Ordinance on Foreign Exchange and the International Monetary Fund (IMF) officially recognized Vietnam's liberalization of current transactions. In 2006, the Vietnamese foreign exchange market began to be underpressured by international economic integration. The amount of foreign currency transferred into Vietnam increase strongly. WB and IMF have warned that the SBV should increase the flexibility of the exchange rate due to the increasing capital flow into Vietnam. Figure 3.1: USD/VND Exchange rate from 1999 to 2006 Trang 6
8. 16500 16000 15500 15000 14500 14000 13500 13000 12500 1999 2000 2001 2002 2003 2004 2005 2006 TG BQLNH TG NHTM TG TRẦN TG SÀN Sources: SBV, VCB and author’s data collection • 2007 - 2011 Figure 3.2: USD/VND Exchange rate from 2007 to 2011 TG TRẦN TG SÀN TG NHTM TG CHỢ ĐEN 22000 21000 20000 19000 18000 17000 16000 15000 2/1/20072/4/20072/7/2007 2/1/20082/4/2008 2/7/2008 2/1/20092/4/20092/7/2009 2/1/20102/4/20102/7/2010 2/1/20112/4/20112/7/2011 2/10/2007 20/6/2008 2/10/2008 2/10/2009 2/10/2010 3/10/2011 30/12/2011 Sources: SBV, VCB and author’s data collection This is the time that the USD / VND exchange rate fluctuated sharply. After Vietnam's accession to the WTO, the liberalization of capital account was widened, leading to increased inflows of capital into Vietnam which greatly affected the fluctuation of the exchange rate. At the beginning in April 2007,the combination of international debts, deficit balance of payments due to high trade deficit and the sharp decline of foreign exchange reserves created a strong demand for USD. The State Bank of Vietnam (SBV) continuously solds foreign currency to intervene the exchange rate when the market appeared the official exchange rate and the black market rate with large gap for a long time. By the end of 2011, the SBV had used many approaches to control and stabilize the market. Trang 7
9. • 2012 - 2017 The USD/VND exchange rate was stable in this stage, the SBV's exchange rate management policy was fit with market developments. The SBV's monetary polices had made positive changes in the forex market, and the black market had almost ceased. In addition, SBV also narrowed the difference between the interbank rates and the exchange rates listed by commercial banks (100-300 VND/USD ). Thus the psychology of holding foreign currencies of organizations and individuals had declined. The SBV extended the exchange rate to +/- 3% by 2015. On 31/12/2015, the SBV issued Decision No. 2730 / QD-NHNN which announced the base rate of USD / VND, cross exchange rate of VND with other foreign currencies. The exchange rate management policy of the State Bank corresponded with the current conditions of Vietnam, which promoted greater flexibility and activeness with market movements. Figure 3.3: USD/VND Exchage rate from 2012 to 2017 23000 22500 22000 21500 21000 20500 20000 19500 19000 2/1/20122/3/20122/5/20122/7/20123/9/2012 2/1/20132/3/20132/5/20132/7/20133/9/2013 2/1/20142/3/20142/5/20142/7/20142/9/2014 2/1/20152/3/20152/5/20152/7/20152/9/2015 2/1/20162/3/20162/5/20162/7/20162/9/2016 2/1/2017 2/11/2012 2/11/2013 2/11/2014 2/11/2015 2/11/2016 TG BQLNH TG NHTM TG TRẦN TG SÀN Sources: SBV, VCB and author’s data collection Thus, Vietnam's exchange rate policy has its main characteristics. Firstly, the exchange rate policy of Vietnam in many periods tends to be fixed with USD was main foreign currency. Secondly, the fixed exchange rate VND/USD had affected trade and investment with other countries. Thirdly, the Average Interbank Exchange rate published daily by the State Bank of Vietnam did not always reflect the real supply and demand of the market, especially when there was a situation of excess or tension in foreign currency. Finally, the inflexible and non-marketable exchange rate policy had huge impact on the economy. Trang 8
10. 3.3. RESEARCH METHODS Formula Model VAR: yt = Ddt + A1 yt-1 + + Ap yt-p + ut Where yt = (y1t , y2t , ynt) is the vector series (nx1) of the endogenous variables in time series t, D is the matrix of blocking coefficient dt, Ai is the coefficient matrix (k x k) for i = 1, ..., p of endogenous variables with the delay yt-p. ut is the white-noise errors in the equations covariance matrix system is the unit matrix E(ut,ut’)=1.. The regression model will be considered for selection after performing the tests, especially the stopping test of time series. The results show that the data series does not stop at the same level. It is necessary to conduct VAR model to test the impact of the USD / VND exchange rate on the macroeconomic factors of Vietnam, such as GDP, CPI and M2. The VAR model is used because of its many advantages. Firstly, the VAR model does not distinguish endogenous and exogenous variables during regression, the variables in the endogenous model do not affect the reliability of the model. Secondly, the VAR model is executed when a variable value is expressed as a linear function of the past or delay values and all other variables in the model, thus long-term data sets are not required , the model is often appropriate for regressing developing countries. Thirdly, the VAR incorporates with convenient measurement tools such as push response,decomposition, etc., to aid in clarifying how each variable reacts to the shocks of other variables. . 3.4. MODEL AND DATA Table 3.1: Determining variables method Variables Symbol Used variables/Calculation Sources Vietnam growth GDP GDP (%) ADB Consuming Price LNCPI00 The CPI is calculated by CPI of each IFS year with base year (1st quarter 2000 CPI), then log Money supply LNM2 Sum of payments, then log IFS Trang 9