Trade openness and real effective exchange rate volatility: The case of Vietnam

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2004–2020. The study was conducted in the context that Vietnam’s trade openness is increasing, causing significant challenges in macro management, including exchange rate management. The authors use vector autoregression model and Granger causality test to test this relationship. The study used a vector autoregression model and Granger causality test to investigate the causal relationship between trade openness and real effective exchange rate volatility in Vietnam over the period 2004–2020. The study was conducted in the context of Vietnam’s trade openness index rising, causing significant challenges in macro management, including exchange rate management. The study takes a new approach (i) using Vietnam’s real effective exchange rate relative to 143 trading partners; and (ii) examining the impact of economic growth on trade openness and exchange rate volatility. The research results indicate that trade openness has a two-way Granger causality with effective real exchange rate volatility in Vietnam at the 1% significance level. Specifically, the effect of trade openness on real exchange rate volatility is positive at a 1-period lag and 4-period lag. Meanwhile, real exchange rate fluctuations have a negative effect on trade openness with a 1-period lag. At the same time, the study also finds that increased economic growth reduces real effective exchange rate volatility and increases Vietnam’s trade openness. On that basis, the study proposes implications for the management of trade openness and exchange rate management in the current Vietnamese context.

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    • Figure 1. Analysis of impulse-response functions (IRF)
    • Figure 2. Unit circle
    • Table 1. Unit root test results
    • Table 2. Determining the optimal lag
    • Table 3. Testing results for the relationship between the V_reer and OPEN
    • Table 4. Granger causality Wald tests
    • Conceptualization
      Nguyen Thi Kim Lien
    • Data curation
      Nguyen Thi Kim Lien
    • Formal Analysis
      Nguyen Thi Kim Lien
    • Funding acquisition
      Nguyen Thi Kim Lien, Toan Ngoc Bui
    • Investigation
      Nguyen Thi Kim Lien
    • Methodology
      Nguyen Thi Kim Lien
    • Project administration
      Nguyen Thi Kim Lien
    • Resources
      Nguyen Thi Kim Lien
    • Software
      Nguyen Thi Kim Lien, Thu-Trang Thi Doan, Toan Ngoc Bui
    • Supervision
      Nguyen Thi Kim Lien
    • Validation
      Nguyen Thi Kim Lien, Thu-Trang Thi Doan, Toan Ngoc Bui
    • Visualization
      Nguyen Thi Kim Lien, Thu-Trang Thi Doan, Toan Ngoc Bui
    • Writing – original draft
      Nguyen Thi Kim Lien
    • Writing – review & editing
      Nguyen Thi Kim Lien, Thu-Trang Thi Doan, Toan Ngoc Bui