The Impact of Real Exchange Rate on Output and Inflation in Vietnam: A VAR approach

Abstract

This paper examines the impact of the real depreciation on economic performance in Vietnam using VAR approach.The study shows that although the main sources of variance in output and price level are "own shocks", innovations in the real exchange rate account for a higher proportion in the variation of output than that of price level.A real devaluation has positive impact on both output and inflation.The devaluation shock may affect inflation and output growth via raising money supply and improving trade balance.However, the real exchange rate changes do not have significant effect on output in the long run.

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