A Test of Purchasing Power Parity Efficiency in Vietnam and Other Southeastern Asian Countries

11 Pages Posted: 17 Aug 2017

See all articles by Thuy Tien Ho

Thuy Tien Ho

University of Finance and Marketing (UFM)

Pham Hong

University of Finance and Marketing (UFM), Students

Hoai Ho

University of Finance and Marketing (UFM), Students

Date Written: August 17, 2017

Abstract

We have tested the existence of PPP between Vietnam and four main trading partners of Vietnam in ASEAN. With a different approach compared to existing researches in the literature, we showed existence of PPP between Vietnam and Singapore (SIN), Thailand (THA) and Philippines (PHI) but not between Vietnam and Malaysia (MAL). The PPP theory can exist or not, depending on a variety of influences. The main influence is the country's exchange rate policy. According to IMF, after the economic crisis in Thailand in 1997, other Southeastern Asian countries have changed their exchange rate policies from fixed rate with USD to floating rate (THA, PHI) or flexible rate (SIN). In the case of Malaysia, the exchange rate policy is not stable but changes from fixed rate with USD (2003) to floating rate in control (2008) and since 2012, the Malaysian central bank has controlled and announced the exchange rate daily. In the mean time, the exchange rate of Vietnam has been steadily fixed with USD. This implies that VND has not changed much compared to the other 4 currencies, but inflation in Vietnam has changed dramatically in the period of this research. Because of this, VND has been likely to be overpriced, especially when compared to MYR, VND is overpriced to 40%.

Keywords: Purchasing Power Parity, Exchange rate, Semi-parameter model

JEL Classification: F30

Suggested Citation

Ho, Thuy Tien and Hong, Pham and Ho, Hoai, A Test of Purchasing Power Parity Efficiency in Vietnam and Other Southeastern Asian Countries (August 17, 2017). 30th Australasian Finance and Banking Conference 2017, Available at SSRN: https://ssrn.com/abstract=3020555 or http://dx.doi.org/10.2139/ssrn.3020555

Thuy Tien Ho (Contact Author)

University of Finance and Marketing (UFM) ( email )

2/4 Tran Xuan Soan Street, District 7
Ho Chi Minh City
Vietnam

Pham Hong

University of Finance and Marketing (UFM), Students ( email )

2/4 Tran Xuan Soan Street, District 7
Ho Chi Minh City
Vietnam

Hoai Ho

University of Finance and Marketing (UFM), Students ( email )

2/4 Tran Xuan Soan Street, District 7
Ho Chi Minh City
Vietnam

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