The impact of trade openness on exchange rate pass through in Vietnam

Abstract

This paper investigates the impact of trade openness on the pass-through of the exchange rate to inflation by using a smooth transition regression model (STR). The result shows that the greater the degree of trade openness is, the lower the exchange rate pass-through is. This explains that the intensity of competitiveness increases when foreign firms enter particular industries in Vietnam and the rapid economic integration could cause the reduction in local firms' pricing power. This result also shows that changes in market competitiveness are the important channels through which the exchange rate affects inflation. The trade openness threshold, in which the exchange rate pass-through coefficient changes, is 117% of GDP.

Keywords

• độ mở thương mại
• hồi quy chuyển tiếp trơn (str)
• truyền dẫn tỷ giá