Exchange rate pass-through into inflation in Vietnam: evidence from VAR model

Abstract:

Purpose
The purpose of this paper is to examine and analyze the exchange rate pass-through into inflation (ERPT) in Vietnam.

Design/methodology/approach
The paper examines and analyzes the ERPT in Vietnam by applying vector autoregression model over the period 2008‒2018.

Findings
The key finding of the research is that from the impulse response results, the transmission of exchange rate shocks to inflation is significant in Vietnam, and this is incomplete exchange rate pass-through. Moreover, the evidence from variance decompositions argues that exchange rate is an important factor to explain the fluctuation of inflation.

Originality/value
In overall, the depreciation or appreciation of exchange rate in Vietnam will considerably impact inflation.