Exchange Rate Misalignment: An Application of Purchasing Power Parity and the Behavioral Equilibrium Exchange Rate in Vietnam

Abstract

The impact of exchange rate misalignment on economic growth has become an important research topic in recent years in many different countries. Especially, in the context of global economic turmoil and trading conflicts between China and the United States, many countries raised interest rates to combat rising inflation. Governments tried to find suitable exchange rate policies to help stabilize inflation and develop their economies. This paper aims to analyze the misalignment of the real effective exchange rate in Vietnam by using the behavioral equilibrium exchange rate and purchasing power parity models. The result shows that the Vietnam Dong was undervalued in the period 2000-2010 and overvalued in the period 2010-2020.