The Exchange Rate Channel of Monetary Policy Transmission in Vietnam

This study researched the transmission mechanism of exchange rate policy to Vietnamese macroeconomic factors from January 2005 to June 2014. Based on the results estimated by VAR model with 8 months lag, the author concluded that exchange rate solely affects the growth of industrial output and the growth of import. Besides that, exchange rate had limited impact to inflation. By analyzing the effect of shock response, the research figured out that exchange rate shock strongly affected to the growth of import in the second month, but weakly and slowly on the growth of export. Moreover, the impact on monetary supply exists in third month but it is so weakly. The variance decomposition analysis demonstrated that the changing of exchange rate impacted on macroeconomic factors in both long term and short term. The changing of inflation was explained by exchange rate most strongly in eighth month with 13.4% and by the growth of impact so slowly and weakly.