Exchange Rate in Viet Nam during 2000-2011:

Determination, Misalignment, Impact on Exports

and Policy Dimensions
1


Vu Quoc Huy
Vu Pham Hai Dang
and
Nguyen Thi Thu Hang
2






First Draft
July 2011


1
This study is commissioned by Economic Commission of National Assembly and UNDP in Viet Nam. The
authors would like to thank Vu Viet Ngoan, Nguyen Tri Dung, Nguyen Duc Hoa, To Trung Thanh, Rodney
Smidth, and Vu Lan Anh for their ideas, advice and support. The views expressed and the errors remaining,
however, are the authors sole responsibility.
2
Faculty of Development Economics, University of Economics and Business, Viet Nam National University.
DRAFT ONLY, NOT FOR QUOTATION

Contents
Introduction ............................................................................................................................... 4
Exchange rate management in Viet Nam: Recent policy developments ................................ 6
Recent Developments ....................................................................................................................... 8
Real exchange rate development ................................................................................................... 15
Real (Effective) Exchange rate determination and misalignment ........................................ 20
Real Effective Exchange Rate (REER): Concept, Measurement and Application ................... 20
Measuring Real Effective Exchange Rate in Viet Nam: New data and findings. ......................................... 22
Main results and optimal choice of country coverage and data frequency. ................................................. 23
Real EffectiveExchange Rate Determination and Misalignment ............................................... 25
Measuring the Equilibrium Exchange Rate ................................................................................................... 25
Model specification: A literature survey ....................................................................................................... 29
Model selection and empirical implementation for Viet Nam ....................................................................... 31
Concluding remark ......................................................................................................................... 35
The effects of exchange rate on trade balance: An econometric assessment ....................... 36
Model specification ........................................................................................................................................ 36
Data ................................................................................................................................................................ 38
Main findings and implications ...................................................................................................................... 39
Concluding remark ......................................................................................................................................... 43
Towards an flexible and effective ER management mechanism: Public Policy Dimension
of ER management.................................................................................................................. 44
ER Management and Policy Objectives ....................................................................................... 44
Conclusion and Policy Implications ...................................................................................... 50
References ............................................................................................................................... 51
Appendices ............................................................................................................................... 52




List of tables

Table 1. Real ER indices of selected currencies against USD (base year = 2000) .................. 16
Table 2: Single country Long-Term REER estimation: Summary of Results for (Los Income
Countries (LICs) and Emerging Market Economies (EMEs) .................................................. 30
Table 3: Unrestricted Co-integration Rank Tests: ................................................................... 32
Table 4: Summary of regression results for four AR options .................................................. 33
Table 5: Export coverage of pairwise Grange Causality Tests between Exchange Rate and
Exports ..................................................................................................................................... 39
Table 7: Export values affected by a exchange shock in two periods: 2 and 4 ....................... 42
Table 8: : Export values affected by a exchange shock in two periods: 6 and 8 ..................... 43
Table A 1. Viet Nams ER Arrangements, 1989-2011 ............................................................ 52
Table A 2: Viet Nam destinations of exports2005-2010 ......................................................... 57
Table A 6. Co-intergation coeffients by sub-sectors ............................................................... 67
Table A 7: Short-term responses of export to exchange rate: .................................................. 75

List of Figures

Figure 1.Viet Nams Nominal exchange rateVND/USD (LHS) andinflation rate (RHS), 1992-
2010............................................................................................................................................ 7
Figure 2 Daily VND/USD ER and bands, 2008-2011 ............................................................... 9
Figure 3. Daily Official and ParallelMarket ER, VND/USD, 2009-2011 ............................... 10
Figure 4.Quartly Real ER and nominal ER VND/USD 2000-2010 (baseperiod = 2000Q1) .. 15
Figure 5: Quarterly real exchange rate index for selected currencies against USD (2000Q1-
2010Q3 (base period: 2001Q1 ................................................................................................. 18
Figure 6: Real exchange rate volatility: Quarterly Coefficient of Variation for selected
currencies (2001Q1-2010Q3) .................................................................................................. 18
Figure 7: Real exchange rate volatility: Annual Coefficient of Variation for selected
currencies (2001Q1-2010Q3) .................................................................................................. 19
Figure 9: Nominal, RER, REER and Export Growth Index .................................................... 24
Figure 10: REER with different country samples .................................................................... 24
. Figure 11: Equilibrium Exchange Rate.................................................................................. 34
Figure 12: Exchange Rate Misalignment: Total and Current .................................................. 35
Figure 13: Short-term responses of exports to a exchange rate shock : Transitional impulse
responses .................................................................................................................................. 41



Introduction
Macroeconomic instability in Viet Nam continued to accumulate during the past few
years and shows worsening signs during the early months of 2011. Budget deficits and trade
deficits have become chronic problems and continued to worsen. Exchange rate management
also faced with various challenges including continuous distortions in the foreign exchange
markets. The situation has been fueled by the return of inflation since September 2010 which
still continues at present (May 2011). These are the four most pressing issues affecting
macroeconomic stability in Viet Nam at the moment.
International experience shows there is no ready recipe as to how a country should
manage its exchange rate. Hernandez and Montiel (2001), for example pointed out that
except for a few cases, most countries build their exchange rate regime along a continuum
between two extreme cases of exchange rate arrangements: bilateral pegs with very narrow
bands, on the one hand and clean floats on the other hand. Furthermore, there are significant
gaps between dejure,what is officially stated and de facto,what is actually conducted in
practice exchange rate policies in many countries. Assessing an exchange rate regime is
therefore an empirical issue.
Apart from the acknowledged gap between de jure and de facto exchange rate policies
in a country, there is also a serious mismatch between expected results of exchange rate
policies and the real impact on the economy that an change in exchange rate policies may
have, as well as the trade-off between these stated objectives. Often, the exchange rate
policies have been given too many usually competing objectives with a few instruments and
policy spaces to implement. Exports may increase and trade balance may be improved due to
a currency devaluation, but this hold under certain conditions (Marshall-Lerner condition, for
example is just one to mention) and the magnitude of impact varies significantly across
sectors and time. Furthermore, there is a conflict between the objectives of stabilizing
consumption based real exchange rates and allowing terms of trade adjustment for an floating
exchange rate regime (Devereux and Engel, 2006). On the other hand, exchange rate can affect
inflation in many ways. As Svensson (1998) agues in an open economy, the real exchange
rate affects the relative price between domestic and foreign goods, which in turn affects both
domestic and foreign demand for domestically produced goods, and hence affects aggregate
demand and inflation. There is also a direct channel, in that the exchange rate affects
domestic currency prices of imported foreign goods, which enter the consumer price index.

The implication is that any scheme to control the rate of inflation on the short horizon must
control, to some extent, the behavior of the nominal exchange rate. Gains for exports from a
devaluation in the first-round effect may be offset by the inflationary impact of this
devaluation in subsequent periods. The magnitude of this combined impact again tend to be
sector- and time-specific due to the nature of exchange rate pass-through and other
transmission channels (Devereux and Engel, 2006). Using real effective exchange rate by itself
as a measure of competitiveness maybe misleading because competitiveness itself is a much
broader concept (Bella, Lewis, and Martin, 2007)
The complexity of conducting exchange rate policy, its multi-facet impact and trade-off
helps explain why the issue has received much of attention and debates in recent years in Viet
Nam, especially since 2007 when the country faces serious macroeconomic turbulences.
Tough measures including ban of foreign exchange trading in the parallel market, imposing
quasi foreign exchange surrender requirement and delayed but then strong devaluation of the
currency in 2011 have raised concerns on the effectiveness and appropriateness of the
exchange rate policy in this period. This study attempts to shed light on some of issues
surrounding the exchange rate management in Viet Nam in recent year on an empirical basis.
We calculate the monthly real effective exchange rate (REER) using up-to-date, high-
frequency and of better coverage data addressing some of problems faced by previous
calculations by various authors. We recommend an optimal frequency and coverage for
calculating REER in the future for policy monitoring and reporting purposes. For the first
time in Viet Nam, a degree of exchange rate misalignment has been determined, using a
simple but quite effective and widely used econometric model. This information on exchange
rate misalignments help make assessment on the effectiveness of exchange rate policy,
providing a better information of the direction of exchange rate movements vis--vis the
fundamentals of the economy, thus helping policy makers to ponder different options of
changes for exchange rate policy and make adjustments accordingly. Finally, a quantitative
method to study the effects of the exchange rate on exports is applied for nearly 200 sub-
sectors in 3-digit SITC classification to gain better understand of dynamic impact of
devaluation on exports. This model confirms the previously mentioned hypothesis that
devaluation affects exports differently across sectors and time.
This paper is organized as follows: Section I summaries the recent changes in the foreign
exchange market and relevant policy developments with emphasis on the post-2007 period.
Section II deals with real effective exchange rate (REER) estimation. Section III on

determining the exchange rate misalignment and Section IV on the econometric model on
impact of exchange rate on exports. Section V is on the public policy dimension of exchange
rate management in Viet Nam and opens up directions for further studies.
Exchange rate management in Viet Nam: Recent policy
developments
Managing the exchange rate (ER) to help control inflation, stabilize the economy and
pr0mote export and improve trade balance has always been de jure an important task for Viet
Nam. This is even more significant at present when Viet Nam is still trying to recover from
the global economic crisis of 2007-2009 and struggling against macroeconomic instabilities.
Viet Nam has had many adjustments in ER regime since the end of the centrally planned
period in 1989. However, most of the adjustments in essence are along a fixed regime. In
Viet Nam, ER is anchored against the USD. State Bank of Viet Nam (SBV) declares the
official bilateral VND/USD rate . Based on the exchange rates between the USD and other
currencies, commercial banks establish the exchange rates between VND and those
currencies. (See Table A.1. in the Appendices for detailed information on the adjustments
since 1989 in Viet Nam)
During the past 10 years, a lot of efforts have been made in studying Viet Nams ER
regime. Representatives for those are studies by Vo Tri Thanh et al. (2000), Ohno (2003),
Nguyen Tran Phuc and Nguyen Duc Tho (2009), and Nguyen Tran Phuc (2009). These
studies indicated that Viet Nams ER regime on the one hand needs to be stabilized but it also
needs to respond to market conditions,on the other hand. Vo Tri Thanh et al. (2000) proposed
Viet Nam to follow a band-basket-crawling arrangement while Ohno (2003) suggested Viet
Nam to apply a crawling peg regime. In recent years, Viet Nam has pursued a crawling peg
regime similar to those proposed by these two studies. However, more recent studied by
Nguyen Tran Phuc and Nguyen Duc Tho (2009), and Nguyen Tran Phuc (2009) argued that
this crawling peg arrangement is not efficient, creating instabilities in the financial market.
Moreover, it also hinders the development of Viet Nam foreign exchange market. Nguyen
Thi Thu Hang et al. (2010) shared the view of Nguyen Tran Phuc (2009) and suggested Viet
Nam to quickly move to a managed float regime.
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periods where parallel market rates were closed to official rates. The reason for this is that
official rates had been increasing continuously during the volatile period and matched with
parallel market rate at the end of such period.
During the beginning of the 1990s, and after witnessing the terrible economic impacts
skyrocketing inflation, Viet Nam had tried to control inflation to stabilize macroeconomic
conditions and to restore public trust in VND. During this period, a rather fixed ER
arrangement as had been used in practice were appropriate. Inflation had been controlled
effectively during 1992-1996.
However, this success had not been repeated in later periods. During the Asian financial
crisis and the recovery year (1997-2003), VND had been continuously devaluated. Yet high
inflation (around 10%) was not persistent and this period even ended in a deflation sub-period
of 2000-2001. Also, the application of relatively rigid ER arrangements from 2004 to 2008
did not help to achieve inflation control. Inflation rate increased over the years and the period
ended with high inflation (20% in 2008).We will discuss in more details the reasons for the
differences in the effects of the same ER arrangements later.
Recent Developments
The 2008-2009 period
The 2008-2009 period marks some major changes in policy response in Viet Nam
regarding ER management. Since 2007, due a massive increase of foreign indirect investment
inflows, USD supply increased greatly. In fact, during the first half of 2007 and from October
2007 to March 2008, Viet Nams foreign exchange markets witnessed a surplus of USD
which dragged commercial bank ER
5
down to the lower band. VND, in effect, appreciated
during these periods.
Figure 2 shows that the official ER had major changes in 2008 due to high inflation and
the initial impacts of the global economic crisis on Viet Nams economy. Also from mid-
2008, together with economic recession, foreign indirect investment also started to reverse
with increasing net outflows.
The year 2009 witnessed extensive fluctuations both in the foreign exchange market of
Viet Nam and in policy responses by the Vietnamese government. Relative movements of
strong currencies under the influence of the global economic crisis have had considerable

5
Commercial bank ERs are rated quoted at commercial banks and have to be within SBVs set band.

impacts on Viet Nams balance of payments as well as its macroeconomic policies especially
those concerning economic growth and inflation control. Domestically, the continuous
depreciation of Viet Nam dong (VND) and changes in exchange rate management policies
created doubts in the public regarding the trustworthiness of the dong and the credibility of
policy. These challenges led to the need for a reconsideration of current ER management
policy and for an examination of the conditions for moving on to another ER regime.
The major trend for official ER in 2009 is the nominal depreciation of VND against
USD. By the end of 2009, the official VND/USD rate had increased by 5.6% compared to
that at the end of 2008. While during 2008, commercial bank rates were very volatile,
sometime even lower than the official rates (such as at the beginning of the year), during
2009 commercial bank rates were virtually always match with the upper band set by SBV.
Figure 2 Daily VND/USD ER and bands, 2008-2011

Source: SBV, Vietcombank(2011) and authors calculation
For most of the year 2009, pressures from foreign exchange supply and demand as well
as from speculation pushed up the parallel market rate far away from the OER. Despite the
fact that in March SBV tried to widen ER band around the OER from +/-3% to +/-5% the
widest band ever been used over the past decade, commercial banks continued to quote at the
upper band level. Current account deficit had been in trouble some position for sometimes
and continued to get worse from March 2009. Import value during the last quarter of the year
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increased greatly compared to the first quarter, taking around 30% total import value of the
whole year. Export value declined 10% compared to that in 2008 mainly due to decline in
world prices of major exports of Viet Nam. Even though export recovered at the end of the
year, trade deficit reached USD2 billion in November, highest monthly level of 2009.
In addition, the big gap between domestic and world gold prices contributed to the ever
increasing demand for USD due to businesses wanted to import gold to take advantages of
the gap. Both gold price and USD price measured in VND increased. Due to speculative and
psychological effects (dollarization) the public also increased their demand for USD in
parallel foreign exchange market forcing parallel market ER to increase greatly. At the same
time, due to limited access to USD supply, businesses had to either pay extra fees to purchase
foreign exchange at commercial banks or turn to parallel market for their needs. Public
doubts about policy credibility increased considerably causing supply to decline and demand
to increase, pushing the parallel rate up even further. Many concerns were raised about
further devaluation of VND, especially after the publication of the reports by financial
institutions.
Figure 3. Daily Official and ParallelMarket ER, VND/USD, 2009-2011

Source: SBV, Vietcombank and private gold stores (2011)
On 26/11/2009, to ease speculative and market pressures, SBV was forced to officially
devaluate VND by 5.4%, the highest daily devaluation rate since 1998
6
and narrow the ER

6
At the end of December 2008, SBV devaluated VND by 3%.
16000
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ParallelMarketRate CommercialBankRate OfficialRate

band to +/-3%. Together with these changes, SBV also increase its benchmark interest rate
from 7% to 8%/year. These policy responses were considered to be appropriate but rather
late. VND continued to lose value which was evident in the high parallel market rate at
19,400 VND per USD and commercial banks continued to quote at upper band level at the
end of 2009.
The above situation could have been worse without the followings: (i) the reduction in
foreign exchange demand due to the decline in remittance outflows from foreign-invested
enterprises (estimated at USD3 billion in 2009, compared to USD4.4 billion in 2008) and (ii)
the increase in foreign exchange supply thanks to the sustained level of remittances from
overseas at more than USD6 billion. Disbursed FDI was estimated at USD10 billion in 2009.
And even though net inflow of foreign indirect investment was negative during the first half
of the year, the flows reversed at the end of the year.
The above analysis shows that during this sub-period, SBV had been hesitant and
inconsistent in making ER policy. The widening of bands instead of official devaluation in
March 2009 did not bring the expected results. During the whole year, despite administrative
measures (such as the regulation that requires all state-owned enterprises to sell foreign
exchange to SBV) as well as various statements by SBV officials, parallel market rates
continued to stay at levels higher than commercial bank rates. In addition, trying to maintain
the OER for prolonged period, SBV had to sell a considerable amount of USD, in effect
reducing Viet Nams foreign reserves. By the end of 2009, there was still considerable
expectation about further depreciation of VND.
The 2010-2011 period
The year 2010 continued with the same trends in the foreign exchange market as in the
year 2009. In particular, commercial banks continued to quote at the upper band of the
official ER for most of the year and the gap between parallel market rate and official rate rose
to unprecedentedly high levels near the end of 2010.
As the pressures were still high despite various attempts by SBV at the end of 2009, on
11/02/2010, SBV increased the official rate from 17,941 VND/USD to 18544 VND/USD, a
3.3% devaluation. Together with this, SBV carried out various administrative measures to
ease the pressure in the foreign exchange market such as reducing the required reserve ratio
for foreign currency deposits, expanding credit in foreign currencies, stopping gold trading
using foreign accounts by commercial banks and credit institutions, closed down gold trading

floors, and increased the basic interest rate to 8%. As a result, foreign currency credit growth
reached 27% during the first half of 2010 while domestic credit in VND grew only by 4.6%.
At the same time, the amount of foreign transfers by Vietnamese overseas and the amount of
FDI, ODA and FII disbursements both increased during the first two quarters of 2010 as
compared to the same period of 2009 under the economic crisis. All of these factors
contributed to both the increase in supply and the reductionin demand for dollars, thus
reducing the gap between the official rate and the parallel market rate during the second
quarter and the first half of the third quarter of 2010 (see figure 3).
However, despite this, commercial banks continued to quote at or near the upper band of
the official ER. And from the beginning of July 2010, parallel market rate started to climb
though slowly at first. These trends reflect the expectations for further devaluation of VND in
the foreign exchange market. The reasons for such expectation include (i) the ease in supply
of dollar was mainly due to businesses taking advantage of the difference in interest rates
between foreign currency denominated deposits and VND deposits; (2) many administrative
measures by SBV are temporary and expected to be reversed; (3) fear of increased demand
for foreign currencies as many of the debts in foreign currency taken out by businesses to
take advantage of interest rate differences would soon be due; and (4) speculative behaviors
by the public for trust in VND was waning.
Perhaps realizing these potential threats, on 17/08/2010, SBV unexpectedly increase the
official ER by 2.1% to 18,932 VND/USD even when the pressures were not apparent and the
gap between parallel market rate and the official rate had been staying at low level of around
500 VND/USD. Immediately, commercial banks raised their rate to the upper limit. SBV
action might have been able to relieve the pressures and stabilize the exchange rate if it was
not for many unfavorable factors that occurred during the last months of 2010. The first and
perhaps most important factor was the rise in world gold price to record high level which led
even to higher increase in domestic gold price due to speculation.At the same time, after
several months of low inflation rate, inflation started to climb since September 2010 making
the CPI for the year 2010 increase to 11.75% compared to 7% in 2009.
During the past few months of 2010, the foreign exchange market saw an increasing in
demand for foreign currencies due to (i) the increased need for paying up debts taken by
businesses during the first and second quarters of 2010, (ii) increase demand for import as it
often does at the end of the year and also for gold import to take advantage of the difference
between domestic and world gold prices, (iii) the tightening of SBV on foreign currency

credit, (iv) the increase in interest rate of deposits denominated in foreign currency to more
than 5% per annum and (v) speculations. In addition, the supply of foreign currencies was
declining due to businesses unwillingness to sell foreign currencies to banks for fear of
further devaluation.
As a result of the excess demand in the foreign exchange market, the parallel market rate
started to climb again since September 2010 to 20,500 VND/USD in mid-October and to a
record high level of above 21,500 VND/USD by late November (see figure 3). Facing with
such crisis, SBV again carried out various administrative measures such as declaring the
increase in the supply of dollars for imports of necessary intermediate goods, tightening the
trading and lending/borrowing in gold, and increasing quota for gold import to ease up
domestic gold price. Also, the basic interest rate was increased to 9% per annum in
November.
Yet, the parallel market rate only eased up a little and stayed high at the end of 2010 and
beginning of 2011. The first reason for this was that most measures by SBV, especially those
applied in domestic gold market were temporary. Secondly, foreign reserves had been
declining continuously since 2009 and thus the guarantee by SBV to supply foreign
currencies to the market was not fully backed. Thirdly, inflation was high and continued to
rise. Fourthly, trade deficits for 2010 were still high at USD12.4 billion (already excluding
USD2.8 billion in gold). This crisis was further fueled by speculative behaviors.
Unable to sustain the exchange rate further, SBV declared an unprecedentedly high rate
of devaluation of VND (9.3%) in early February 2011, increasing the official rate to 20,693
VND/USD and narrowed the band to +/-1%. This attempt did not show immediate results.
Parallel market jumped to over 22,100 VND/USD within a few days. In March 2011, SBV
tightened the activities in foreign exchange market, setting interest rate ceiling for foreign
currency deposits and thus effectively widening the gap between this rate and the VND
deposit rate which were already at its ceiling level of 14%. Ceiling rate for USD denominated
deposits was reduced from around 5% to 3%. At the same time, from March to June, SBV
carried out various anti-dollarization measures such as lower ceiling rate for USD
denominated deposits (from 3% down to 2%), tightened controls on black market activities
and on domestic gold market. Also as domestic gold price was lower than international price,
gold export increased significantly, especially during May and June. Thus, supply of dollar
increased partly due to the conversion from USD deposits to VND deposits to take advantage
of high VND deposit rate and partly due to the increased amount of USD obtained from gold

export. Also, SBV declared that it had acquired an additional of USD3 billion for foreign
reserves.Effectively, both the parallel market rates and the commercial bank rates went down
and sometimes even lower than the official rates since April 2011.
The sub-period of 2010-2011 show more responsive attempts by the SBV than in
previous years. In particular, the SBV tried to stay ahead of the market in August 2010 when
the pressures in the foreign exchange market were relatively low. Also, the SBV carried out
larger one time devaluation (February 2011). These actions show that the SBV is less rigid
and more oriented toward the market than before. However, the SBV is still using many
administrative measures instead of creating the environment for the market to adjust.
Although the pressures in the foreign exchange market have eased up somewhat, the
lessons from similar situation in mid-2010 warn us not to take the market for granted. There
are undeniable similarities between these two periods of seemingly calm market conditions.
First, businesses and individuals have been converting USD deposits to VND deposits to take
advantage of interest rate differences in both periods. Second, in both periods, commercial
banks have been easing up on their ERs, quoting below (though still close to) the upper limit.
Third, foreign currency credits have been expanding much faster than VND credits in both
cases which means end of year demand for foreign currencies to pay back those debts will
certainly increase. Fourth, pressures from trade deficits have been strong. Lastly, parallel
market rates and commercial banks rates stay close together. (Despite the tightened controls
in the black market, certain activities are still going on). Thus, if unfavorable conditions
emerged during the last quarter of 2011 such as sudden and big changes in gold markets (both
domestic and world), high inflation (both international and domestic), pressures in the
exchange rate market will increase and may lead to fluctuations in the market as we
experienced during the last quarter of 2010.
There are, nonetheless, differences in the market conditions in the current period
compared to that of mid-2010. First, the situation was more favorable in 2010 because the
foreign exchange market was calm during a period of low inflation and therefore trust in
VND tends to be high. At present, however trust in VND is running low due to the past 8
consecutive months of high inflation. Nevertheless, SBV has been able to and is still making
more effort to increase foreign reserves using some tough administrative measures such us
crack down the parallel market, imposing quasi-foreign exchange surrender requirements. It
seems that so far SBV was able somehow to stabilize the market. Third, SBVs last
devaluation in February 2011 (9.3%) was almost twice as high as all two devaluations in the

year of 2010 (5.4%)combined together. That raises some hope that pressures for further
devaluation this year will be less than those in the last year. Yet again, one should take into
account the fact that inflation this year will be considerably higher than that of 2010.
Real exchange rate development
Figure 4.Quartly Real ER and nominal ER VND/USD 2000-2010
(baseperiod = 2000Q1)


Source: Authors calculation based on SBVs and IFSs data (2011)
Figure XX show the patterns of change of both nominal and real exchange rate in the last
decade by quarter. The nominal rate shows a clear depreciation trend throughout the whole
decade and tends to accelerate more so from 2008 until now. The estimated time trend
7
of
depreciation was about 0.4 percent in the period 2000-2007 but it reaches 1.8 percent level in
the subsequent period from the early 2008, an increase of nearly fivefold compared to the
previous period. The real ER, however, shows a different pattern of movement. It experiences
a rather modest depreciation in the period of 2000Q1-2003Q3 with the time trend equal to
0.75 percent. The currency, however, shows a strong appreciation trend in the period of
2003Q4-2008Q4 with an appreciation speed of around 1.5 percent quarterly (Figure xx). The

7
The time trend is the coefficient of time variable in the following simple regression y= c+ a*time +( b*X)


gap between nominal and real ER has been widening especially during 2008-2010 due to
high inflation that the country experienced in this period. Viet Nams consumer price index
(CPI) increased by 123% during the period from 2000 to 2010, while the index for the US
increased by only 26.7% over the same period. The nominal VND/USD rate increased only
30.4% over the period. Thus, in effect, the currency appreciated 25.9% in real term during
this period. A strong nominal depreciation of 9.3% recent in February 2011doesnt
seemtoturn this appreciation trend since annual inflation hits a high level of 13.54% again in
the first 6 months of 2011.
Table 1. Real ER indices of selected currencies against USD
(base year = 2000)
Unit: %
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
CNY 101.67 104.95 104.11 104.07 103.85 100.64 91.90 84.30 84.87 80.28
Euro 105.12 88.56 73.50 68.70 80.51 72.30 65.32 68.45 66.56 71.89
Yen 118.75 111.19 101.61 101.73 120.05 123.32 122.18 97.60 102.48 92.36
Singapore dollar 109.50 104.95 103.97 101.74 106.15 99.16 93.35 89.11 89.30 80.14
Taiwan dollar 109.64 111.24 110.66 105.35 110.18 110.61 111.18 108.92 107.96 99.45
Australian dollar 108.49 96.87 72.80 70.50 75.53 69.31 62.90 84.35 65.14 57.49
Korean won 103.03 92.01 90.71 78.54 77.67 71.34 72.34 93.80 85.95 81.39
Thai baht 105.00 103.27 95.10 93.96 96.88 84.86 79.26 82.63 77.91 69.88
Malaysia Ringgit 100.36 101.36 102.10 103.11 103.05 95.43 91.04 92.13 91.39 80.62
VND 104.57 105.24 105.68 100.13 96.29 93.02 85.84 76.40 76.63 74.10
Source: Authors calculation based on SBVs, WEOs and IFSs data (2011)
During the same period the USD also depreciated considerably against other currencies
of Viet Nams major trading partners (see Table 1). In nominal term, since the VND
experience a considerable depreciation against the USD, one may expected that the currency
also depreciated against other currencies. However, despite the general real appreciation
against the USD, VND appreciated considerably more than other currencies in Asia such as
Singapore Dollar, Korean Won, Malaysian Ringgit and Chinese Yuan. This real appreciation
of VND has reduced the competitiveness of Viet Nams export in global markets.







Figure 5: Quarterly real exchange rate index for selected currencies against USD
(2000Q1-2010Q3 (base period: 2001Q1

Figure 6: Real exchange rate volatility: Quarterly Coefficient of Variation for selected
currencies (2001Q1-2010Q3)




Figure 7: Real exchange rate volatility: Annual Coefficient of Variation for selected
currencies (2001Q1-2010Q3)






Real (Effective) Exchange rate determination and misalignment
Real Effective Exchange Rate (REER): Concept, Measurement and Application
The exchange rate policy plays an important role in the macroeconomic policy of an
economy and exchange rate is one of important tools of this policy. In theory, exchange rate
reflects a relative price (between foreign and domestic currency). As a country engages in
trading and other transactions with several countries in the whole, an aggregate index which
would reflect a global value of the currency is constructed based on a set of bilateral rates and
the intensities of trade between these countries with the home country. The Nominal
Effective Exchange Rate is established on this basis and defined as the exchange rate of the
domestic currency vis--vis other currencies weighted by their shares in either the countrys
international trade or payments. (OECD, 2010) The Real Effective Exchange Rate (REER)
on the other hand, is calculated based on NEER adjusted for price deflators or cost indices.
Formally, these two indices NEER and REER are defined as follows.

=
=
n
j
w
jt t
jt
e NEER
1
) (

=
=
n
j
w
t
jt
jt t
jt
P
P
e REER
1
) (

In which:
t year
n number of major trading partners of Viet Nam
e
jt
nominal bilateral ER of VND against country js currency at year t, measured as
the units of VND per unit of country js currency, and expressed as an index
P
t
the domestic price index
P
jt
country js price index
w
jt
is the weight assigned to currency j at time t, corresponding to the share of the
country of currency j in Viet Nams total trade with the selected countries.
On the empirical ground, these indicators are very useful for analyzing a countrys
macroeconomic policy and performances. Chinn (2005) has shown many cases when these
effective exchange rate measures can be used to addressing different economic issues. He in
particular pointed out that these indicators can be used i) as a factor in determining currency
crises as
a depend
(1994) an
(the case
devaluati
substanti
in particu
Viet
(NEER)
rate man
indices;
themselv
and on a
NEER an
Viet Nam
2011). O
Nguyen
and mon
partners o
Figure 8
in the case o
dent variable
nd Chinn (2
of the U.S.
ion between
ve number o
ular (XX).
t Nam does
or the real e
nagement in
others only
ves. The IMF
an annual b
nd REER fo
m. These ind
One of the m
Tran Phuc a
nthly data fro
of Viet Nam
. REER est
0
20
40
60
80
100
120
of currency
e to reflects
2000)), iii) a
trade deficit
n currencies
of studies lin
not publish
ffective exch
Viet Nam
y use the s
F calculated
asis. Recent
or period 200
dices later h
most compr
and Nguyen
om January
m and trade w
imates by N
2
0
0
0
2
0
0
1
2
0
0
2
NTTHang's
overvaluatio
productivity
as an indepe
t and iv) as a
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and publishe
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have been up
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1995 to De
weight calcul
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2
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4
s estimates
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endent variab
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e of Pacific
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ources with
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n Thi Thu H
ng a trade b
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2009) using
ecember 200
lated annual
N&N and I
e year = 200
uyen Thi Thu H
2
0
0
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2
0
0
5
2
0
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6
IMF's esti
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ble to expla
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2
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imates
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major tradin
(Nguyen T
REER so fa
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asket of 25 m
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ND
2
0
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9
2
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a
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ng

Despite of differences in frequency and coverage used, these indices of NEER and
REER show consistent patterns of (i) real depreciation during 2000-2003 and (ii) real
appreciation during 2004-2007 (Nguyen Thi Thu Hang et al.(2010)). Nguyen Thi Thu Hang
(2011) shows a slight improvement during 2008-2010 in the REER but concludes that at the
end of 2010 REER was still more than 20% higher than in 2003 (see Figure 7)
Measuring Real Effective Exchange Rate in Viet Nam: New data and findings.
Given the shortage of data of NEER and REER in Viet Nam as well as some
shortcomings in data coverage and frequency in existing works on these indicators, this study
addresses these shortcomings by providing data with better coverage and higher-frequencies
to revise these indices.
Better coverage.
Price index
It should be noted that in this study we still use CPI and price index for REER. This is a
rather gross simplification according to Chinn(2005). Price indices are collected from
different sources like IMF, Federal Reserve Bank of Cleveland and St. Louis, and Central
Banks of some countries and economies. Except Australia where only quarterly CPI is
available, all other economies have their monthly CPI reported. In some cases where missing
observations occurs different intermediate base was used but finally all indices have a
common base period on January 2000.
Country coverage.
Originally 79 countries were selected for a simple reason that consistent data on trade are
availableon monthly basis only at Global Trade Atlas which includes just 79 countries. These
79 countries howeveraccount for more than 95 percent of total world trade (reported by 162
countries in five years from 2001-2005 (UNCTAD, GTIS). When combined with price data
only 45 countries left but their trade volume still account for 78 percent of total world trade.
The share of these selected countries in trade with Viet Nam is much higher. It will be shown
later that excluding some countries from this REER estimation doesnt change significantly
the value and patterns of REER overtime until the number of the included countries get down
to somewhat 20
Higher-frequency data.

As Chinn (2005) argues how REER should build depends very much on the purpose of
using it. If REER is to be used for monitoring the movement of exchange rate or to find the
links with the fundamentals of the economy, one would expect that data on REER would be
on a more regular basis or on higher frequency inother words. Since we expect that REER
will be used to understand the patterns of ER dynamics since 2000, monthly data with wider
trade-partner database from Global Trade Information System (GTIS) is preferred. On the
other hand, higher frequency data may contain more noises or unexpected deviations from the
normal pattern. In this case, smoothing is required and lower frequency has some merits.
From the policy point of views, a higher-frequency data will provide more information-
content to the issue and hence providing better understanding of what happening to the key
macro policy variables and conditions, helping the policy authorities to make timely and
appropriate adjustment decision if needed. On the other hand, collecting higher-frequency
data require additional costs. In addition, using GTIS data has a number of merits over using
the Vietnamese trade data because it provides a consistent and disaggregate information over
time. Considering all these factors we start calculate REER on quarter basis using GTIS
trade data covering 45 countries (see Appendix for the list of countries included in the
sample).
Main results and optimal choice of country coverage and data frequency.
Figure 9 shows the movement of four indicators: real effective exchange rate (REER) real
exchange rate (VND/USD), nominal exchange rate (VND/USD) and export growth index
over the period 2000Q1-2010Q2. The export growth index, for example enjoys as high as
nearly 5-percent growth by quarter for the whole period (the estimated time trend is higher
(5.3%) in the period prior to 2007 when the countrys export suffered a setback due to the
global financial crisis. The REER, however experiences two different patterns of change: It
tends to depreciatewith an estimated time trend of 3.1 percent by quarter prior to 2003Q4 and
tends to appreciate afterwards with an estimated of time trend of -1.5 percent. This result
seems to be consistent with all previous studies in terms of trends (which should be the case)
but may differ in terms of magnitudes. The fact that REER is closely correlated with
VND/USD real exchange rate and export growth
8
would come with no surprise eitherbecause
US continue to take a significant (20%) share in Viet Nams trade volume. This seemingly
close correlation does not imply the causes of REER movement. We will examine the
determinants of REER later in the next Section

8
A simple regression of REER over these two indicators yield highly significant and positive coefficients





Figure 9: Nominal, RER, REER and Export Growth Index

Optimal choice of country sample and data frequency
As previously noted, there is tradeoff between having more countries in the sample with
higher frequency data for calculating the REER which provides more accurate and timely
information and the costs of required efforts to do so. As indicated in the beginning of this
Section, as more number of countries included and higher frequency data used marginal gains
from more accurate and timely information start to decline. Therefore, an optimal size of
sample should be defined for practical reasons.
Figure 10: REER with different country samples


In Figure10 we compare REER derived from three different set of countries included in
the calculation. The first sample includes all 45 available countries as in the original version
described in the previous Section. The second sample include countries which are in the top
20 of trading partners with Viet Nam either in one of the periods of time in consideration
which are 2000-2004 and 2005-2010. This sample is called Group 20. The third sample
includes 14 countries which are in the top 200 in both periods. The results show that there is
no significant difference in terms of trend in all three samples, but the magnitudes change
significantly when the sample drops to 14 countries. At some point the difference reaches the
10-percent level. The sample of 20, however provides a result quite close to thatby the
original 45-country option. Conclusion which can be drawn from this simulation is that
perhaps a set of 20 countries should be enough to provide a fairly accurate picture of the
REER movements. One precaution needs to be made is that since the directions of trade in
Viet Nam change quite often in the past and perhaps in the near future due to changes in the
world economy and international trade, the composition of this magic 20 may also be
changed. Updated information is needed if REER to be a monitoring tool.
Real EffectiveExchange Rate Determination and Misalignment
Measuring the Equilibrium Exchange Rate
To examine the exchange rate misalignment in order to find out whether a currency is
overvalued or undervalued, one need toknow what is the equilibrium level of exchange rate.
Most of work on exchange rate determination starts from the concept of the Fundamental
Equilibrium Exchange Rate (FEER) developed by Williamson (1994), which defines the

equilibrium exchange rate as the real exchange rate that satisfies simultaneously internal and
external balances. The internal balance is achieved when the economy reaches its full-
employment output. The external balance, on the other hand is characterized by a sustainable
balance of payments over the medium term, i.e. the level of current account deficits/surpluses
that matches long-term capital inflows/outflows. The FEER tends to abstract from the short-
run cyclical and speculative forces in the foreign exchange market. It often requires large
scale macroeconometric models or a partial trade blocks for a given country to determine the
FEER. An extended version of FEER is Natural Rate of Exchange (NATREX) developed by
Stein (1994, 1995, 2002) which is also based on the macroeconomic internal and external
balances. However, to determine NATREX one needs to consider not only the medium term
but also the long term conditions when capital stock and foreign debts converge to their
steady state.
The FEER approach has been used by the Consultative Group on Exchange Rate Issues
(CGER) at the IMF to provide exchange rate assessments for a number of countries. A study
undertaken by an IMF team in Research Department (IMF,2006), for example, uses a cross-
country regression (including both industrial and emerging-market economies) based on
different exchange rate assessment approach to derive a measure of exchange rate
misalignment for a particular country. The team uses 7 variables (fiscal balance, demographic
factor, net foreign assets, oil balance, economic growth, two dummies for economic crisis
and having a financial center) for calculating a current account norms for each country. The
norm is considered as current account equilibrium. The deviation of the underlying current
account for each country from its norms is considered as a result of exchange rate
misalignment. Therefore a correction is needed for exchange rate in order to restore this
current account equilibrium. The correction is calculated using exchange rate elasticity to
current account.
While this approach is quite appealing, its application to individual country may have
some caveats. Applying the same norms to different countries with different institutional
settings resulting in different policy responses to the same shocks with different pass-through
effects may not be a desirable approach. In fact, the relationship between current account and
other determinants in each country depends on not only a set of country-specific factors but
also, more importantly, the responsiveness of current account to these factors. A cross-
country regression cannot differentiate these differences. It assumes their homogeneity,
instead. The same problem can equally be applied to the case of other approaches outlined in

this IMF study: equilibrium real exchange rate and external sustainability approaches.
Applying this method to the case of Viet Nam, as previously explained, should be undertaken
with extreme care because of cross-section regression problem.
Another approach is based on the concept of Behavioral Equilibrium Exchange Rate
(BEER) by Macdonald (1997) and Clark and MacDonald (1998) that links the real exchange
rate to a set of macroeconomic variables through a single equation setting. This behavioral
equation is then statistically estimated using the observed series or long-term values of the
fundamentals, to derive the estimated equilibrium exchange rate. A variant of BEER called
Permanent Equilibrium Exchange Rate (PEER) refers to the approach that aims to decompose
the long-term co-integration vector (fitted value) into permanent and transitory components
with the permanent component being interpreted as the equilibrium exchange rate. Another
approach is based on time-series estimation of the long-run co-integration between real
exchange rate and other medium and long-run fundamentals such as interest rate differentials,
net foreign assets, productivity, and terms of trade. This approach is believed to be more
suitable for the case of Viet Nam, given the data availability. We will explore this approach
in more details.
The BEER approach has also been recently used in a large number of studies on
exchange rate development. In the BEER model by Fraitet al. (2004), the following
explanatory variables are included: productivity differentials, relative price of non-tradable
goods to tradable goods (approximation of the Balassa-Samuelson effect), net foreign assets,
terms of trade, openness (sum of exports and imports relative to nominal GDP), real interest
rates differentials, government spending and foreign direct investment to GDP ratios.
Fraitet al. (2004) apply four methods to derive the equilibrium real exchange rate: (i)
Hodrick-Prescott Filter, (ii) Band-Pass Filter, (iii) Engle-Granger method, and (iv) ARDL
method. The last two methods are based on the above-mentioned BEER model.
According to the Engle-Granger procedure, a dependent variable Y
t
and exogenous
variables X
i,t
from a long-run relationship (0.1) if all variables are integrated of the same
order and the residuals e
t
are stationary which is tested by ADF unit root test.

0 ,
1
n
t i i t t
i
Y X e
=
= + +

(0.1)
On the other hand, the ARDL method is based on the following error correction form of
the ARDL model.


1 2
0 1 1 1 , ,
1 0
( )
l l
t t t j t j i j i t j t
j j
Y Y X Y X e

= =
= + + + +

(0.2)

Jongwanich (2009) provides another fully operationalized approach to empirically
estimate exchange rate misalignment using BEER model. Five key fundamental variables,
namely, net foreign assets, productivity differentials, government spending toward the
tradable and non-tradable goods, trade policy openness, and terms of trade are generally
included in estimating the long-run equilibrium exchange rate under BEER. This set of
fundamentals is quite similar to that of Fraitet al. (2009). However, the real exchange rate
used by Jongwanich (2009) is not bilateral real exchange rate but multilateral real exchange
rate (REER). After calculating REER and obtaining the above-mentioned set of
fundamentals, Jongwanich (2009) uses Johansen procedure to identify the long-run co-
integration between them which also defines the equilibrium exchange rate. In addition, the
permanent values of all fundamentals are generated by Hodrick-Prescott filter.
The second step after determining the equilibrium exchange rate is to examine exchange
rate misalignments. Both Jongwanich (2009) and Fraitet al. (2004) argue that real exchange
rate misalignment is defined as the deviation of actual exchange rate from its long-run
equilibrium and there are two types of misalignments. The first one is the current
misalignment which is the deviation of the actual real exchange rate from the estimated
equilibrium real exchange rate given by the conditioning set of actual fundamentals. It
measures short-run deviations of exchange rate. The second type of deviation is the total
misalignment which is defined as the deviation of the actual real exchange rate from the
estimated equilibrium real exchange rate based on the sustainable values of the fundamentals.
This type of misalignment measures medium-run deviations.
Specifically, according to Clark and MacDonald (1998) and Jongwanich (2009), we
define the actual RER as:

' ' '
1 1 2 2 t t t t t
RER Z Z T = + + + (0.3)
whereT is a set of transitory/short-run variables,
1t
Z and
2t
Z are medium- and long-run
economic fundamentals. Let
1t
Z and
2t
Z be the permanent components of medium- and long-
run economic fundamentals, then the long-run equilibrium RER is defined as:


* ' '
1 1 2 2 t t t
RER Z Z = + (0.4)
Then the current misalignment is given by

'
t t t
CM T = + (0.5)
and the total misalignment is

' ' '
1 1 1 2 2 2
( ) ( )
t t t t t t t
TM T Z Z Z Z = + + + (0.6)
Model specification: A literature survey
Our study on equilibrium exchange rate and exchange rate misalignment in Viet Nam
will follow the BEER approach as seen in Fraitet al. (2004) and Jongwanich (2009). The real
equilibrium exchange rate is derived from the uncovered interest rate parity (UIP) and
depends on typical macroeconomic fundamentals such as productivity differentials, terms of
trade, net foreign assets, interest rate differentials, trade openness, FDI and government
expenditure. The equation is as follows
9
:
( , , , , , , ) REER f NFA PROD TOT OPEN GEXP FDI RR = (0.7)
NFA is expected to have a negative relationship with REER. An increase in NFA tends
to have income effect, which raises domestic demand. To restore the internal and external
balances, the non-tradable prices must rise relative to tradable prices to switch the demand
from non-tradable toward tradable goods. As a result, REER decreases (i.e. an appreciation.)
Productivity growth in tradable sector of the domestic economy relative to that of its
main trading partners (PROD) is believed to have negative impact on REER via Balassa-
Samuelson effect. An increase in PROD will lead to a rise in domestic demand for labor
employed in tradable-good production. Under full employment condition, labor would be
drawn from the tradable-good sector toward non-tradable sector. As a result, wage rate in the
non-tradable sector would increase and so would the price of non-tradable goods. To restore
the equilibrium, REER should decline.
An improvement in the terms of trade (TOT) implies a rise in export prices over import
prices. It will then affect REER through both income and substitution effects. On one hand,
an improved terms of trade tends to raise income and thus domestic demand, which causes
REER to decrease as discussed in the case of NFA. On the other hand, relatively lower
import prices imply a higher demand for tradable goods and a lower demand for non-tradable

9
For more detailed derivation, see Clark and MacDonald (1998), Jongwanich (2009).

goods. This substitution effect therefore leads to a decrease in the prices of non-tradable
goods and causes REER to increase. Because income and substitution effects work in
opposite ways, the relationship between TOT and REER is ambiguous. As stated in
Jongwanich (2009), many empirical studies have found that in developing countries, an
improvement in TOT tends to make REER decrease as the income effect is generally stronger
than the substitution effect.
A higher degree of trade openness leads to a higher demand for tradable goods. To
restore the equilibrium, non-tradable prices should decrease in order to switch the demand
from tradable goods toward non-tradable goods. Therefore, REER is expected to be
positively related to the degree of trade openness.
The effect of government expenditure (GEXP) on REER is ambiguous and depends on
whether it is toward tradable or non-tradable products. An increase in GEXP on non-tradable
goods implies higher demand for non-tradable sector and higher tradable prices. This leads to
a decrease in REER or an appreciation. On the other hand, changes in GEXP on tradable
goods have the opposite effect on REER. If it is true that GEXP is mostly spent on non-
tradable goods, we would expect a negative relationship between GEXP and REER.
Both real interest rate differentials and FDI are expected to be negatively related to
REER. Higher real interest rate differentials lead to an increase in capital inflows while
higher level of FDI also implies higher capital inflows. As a result, REER appreciates to
restore the internal and external equilibria.
Table 2: Single country Long-Term REER estimation: Summary of Results for (Los
Income Countries (LICs) and Emerging Market Economies (EMEs)

LICs EMEs
Number Percentage Number Percentage
Number of estimated long term-
coefficients

52 51
of which, statistically significant 29 55.8 48 94.1

Number of estimated long term-
coefficients with unambiguous signs
30 24
of which, statistically significant 16 53.3 24 100
of which, both with correct sign and
statistically significant
10 33.3 16 66.7
Source: Gabriel Di Bella, Mark Lewis, and Aurlie Martin. (2007)

This model has received a wide application in recent years. (to be filled with cases) and
tends to find many useful applications (Chinn(2005)). However there is a caution on the
number of factors that complicate the estimation of REER in developing countries and its
applications and interpretations. Among these factors are terms of trade shocks, frequent
political and institutional changes, market imperfections, volatility of financial flows,
multiple exchange rate practices and capital controls (Gabriel Di Bella, Mark Lewis, and
Aurlie Martin. (2007)). As a consequence, estimation of REER may provide undesirable and
difficult to explain results. The IMF team shows that only one-third of estimated long-term-
coefficients in models applied to LICs have both correct sign and statistically significant
(Table 2.)
Model selection and empirical implementation for Viet Nam

Despite some issues in data availability and reliability we are conducting an estimation
of REER in Viet Nam using data from 2001Q1 onwards.
Data used to estimate the equilibrium exchange rate and exchange rate misalignment are
quarterly series compiled from the two main sources GSO and IMF International Financial
Statistics covering the period 2000Q1 2010Q2. NFA is measured as the ratio of NFA of
banking system (IFS database) to nominal GDP (from GSO). PROD is the ratio of Viet
Nams real GDP per employment to U.S. real GDP per employment, used as a proxy for
productivity differentials between Viet Nam and its main trading partners. Data are taken
from Viet Nams GSO and St. Louis and Cleveland Federal Reserve Bank databases. TOT is
measured by the ratio of export price index to import price index, obtained from GSO. The
degree of openness of Viet Nams economy, OPEN, is proxied by the ratio of the sum of
export and import values to nominal GDP, compiled from GSOs data. GEXP, measuring
government expenditure, is the ratio of government expenditure to nominal GDP. Data are
obtained from GSO and Ministry of Finance. Finally, FDI is the ratio of foreign direct
investment to nominal GDP and taken from IFS database. All data except REER are
seasonally adjusted by the author. All series except GEXP are integrated of order 1 while
GEXP is stationary
10
.

10
See ADF test of unit root in Appendix XXX.

Model selection.
A standard procedure of estimation of REER is applied. In the first step, long-term
determinants of REER are defined and estimated using an appropriated model and estimation
technique. Then estimated BEER is derived as a fitted value of long-term REER over filtered
fundamentals. Differences between actual values of REER and estimated BEER will
represent the level of misalignment. The most important part in this procedure is the model
selection.
As mentioned earlier, a standard error correction model could be well applied to estimate
long-term coefficients for REER. In the case of more than one co-integrating factors, the
long-term equation would be difficult to identify. The co-integration test shows the system
has 5 co-integration equations (Table 3). Therefore it complicates the identification of long-
term pattern in just one equation. Error correction model seems not a suitable specification
for this model,
Table 3: Unrestricted Co-integration Rank Tests:
Lags interval (in first differences): 1 to 3
Trace Test Max-Eigen Test
Hypothesized
No. of CE(s)
Eigenvalue Trace
Statistic
0.05 Critical
Value
Max-Eigen
Statistic
0.05 Critical
Value
None * 0.864 233.043 95.754 73.761 40.078
At most 1 * 0.780 159.282 69.819 56.050 33.877
At most 2 * 0.699 103.232 47.856 44.467 27.584
At most 3 * 0.562 58.765 29.797 30.567 21.132
At most 4 * 0.531 28.198 15.495 28.023 14.265
At most 5 0.005 0.175 3.841 0.175 3.841
Note: Trace test indicates 5 co-integratingeqn(s) at the 0.05 level
Max-eigenvalue test indicates 5 co-integratingeqn(s) at the 0.05 level
Therefore we will apply an Autoregressive Polynomial Distributed Lag model (ARPDL)
instead. Formally, the model has the following form:

REER
t
= o +[

1
p
1
=1
FI
t-
+ [

2
p
2
=1
NFA
t-
[

3
p
3
=1
I0I
t-
[

4
p
4
=1
0PEN
t-
[

5
p
S
=1
PR0
t-
+ u
t

where REER is real effective exchange rate
FDI: ratio of FDI to GDP
NFA: Ratio of Net Foreign Asset to GDP

OPEN: index of openness
PROD: index of productivity differentials
and all are in log;
The autoregressive specification is defined as one of the following forms
AR(1) : u
t
=u
t-1
+
t

AR(2) : u
t
=u
t-2
+
t

AR(4) : u
t
=u
t-4
+
t

and AR(1,2): u
t
=
1
u
t-1
+
2
u
t-2
+
t

The final selection of model will be based on Akaike information and Schwarz criteria.
Table xxx summaries the estimation results for four autoregressive options previously
specified. The AR(1) therefore is selected because it has the lowest value of both Akaike
information and Schwarz criteria.
Table 4: Summary of regression results for four AR options
AR1 AR12 AR2 AR4
Coefficie
nt
t-
Statistic
Coefficie
nt
t-
Statistic
Coefficie
nt
t-
Statistic
Coefficie
nt
t-
Statistic
FDI -0.056 -1.076 -0.071 -1.238 -0.094 -1.916 -0.099 -1.990
NFA 0.504 3.900 0.502 3.704 0.511 4.271 0.537 4.699
OPEN -0.214 -1.619 -0.255 -1.524 -0.267 -1.724 -0.402 -2.427
TOT -0.191 -0.569 -0.374 -0.910 -0.385 -1.089 -0.095 -0.298
PROD -4.328 -5.609 -3.790 -3.372 -3.484 -4.190 -3.678 -3.817

R-squared 0.954 0.955 0.949 0.950
Adjusted R-squared 0.933 0.931 0.925 0.921
Akaike info criterion -3.662 -3.598 -3.535 -3.419
Schwarz criterion -3.139 -3.026 -3.007 -2.835
F-statistic 46.749 40.237 40.469 32.950
Durbin-Watson stat 2.061 1.831 1.334 1.134

It can be seen that all dependent variable, except NFA have the correct sign but only two
are statistically significant. NFA has opposite sign but statistically significant. This applies to
other AR options and quite consistently. So we find that there is a long-run relationship
between REER, net foreign assets, productivity differentials, openness, and FDI. Among
those fundamentals, productivity differentials, openness and,to some extent FDI yield
expected signs of their long-run coefficients. Compared with experiences in other LICs and
EMEs as mentioned by Chinn (2005) the long-term estimation of REER for Viet Nam is not
bad. There is some puzzles that need to explain, for example the impact of NFA on the

exchange rate equilibrium, but overall the result seems to be sensible. An increase in
productivity differentials by 1% would lead to 4.33% appreciation of REER while a 1% rise
in FDI brings about 0.056% appreciation in the REER. An increase in the openness by 1%
would lead to an appreciation by 0.21% (Table 4) . Finally, the relationship between NFA
and REER for Viet Nam is not as predicted by the theory as a 1% improvement in NFA
position would lead to a depreciation of REER by 0.5%.
Figure 11 plots actual REER and the estimated BEER. First, it is worth noting that the
estimated equilibrium ER exhibits the same pattern as REER over the last 10 years, i.e.
depreciates until the last quarter of 2003 and appreciates afterward. Second, it shows that the
actual exchange rate is overvalued from the first quarter of 2000 until the second quarter of
2002. The currency then continuously undervalued(against the equilibrium)until the earlier of
2008. Since then the VND embarks on an overvaluation path again, albeit with stronger pace
compared to the previous overvaluation period 2000-2002 and reached a total overvaluation
of more than 20% as of mid-2010.
. Figure 11: Equilibrium Exchange Rate



To understand exchange rate misalignment in more details, we construct the total and
current misalignments which are presented in Figure 12. Prior to 2002, total misalignment is
negative (corresponding to overvaluation) and at the highest level of more than -20%. The
period of undervaluation of exchange rate follows with total misalignment fluctuated between
0 and +18% until early2008. Recently, total misalignment has jumped between 0 and -20%. It
is worth noting that much of exchange rate misalignment is caused by short-run factors as we
8.4
8.5
8.6
8.7
8.8
8.9
9.0
00 01 02 03 04 05 06 07 08 09
VNREER
VNREER_HP
REE_PDL_AR1
BEER_PDL
8.4
8.5
8.6
8.7
8.8
8.9
9.0
00:1 02:1 04:1 06:1 08:1 10:1
BEER_PDL REE_PDL_AR1 VNREER

also observe high level of current misalignment corresponding to high level of total
misalignment.
Figure 12: Exchange Rate Misalignment: Total and Current




Concluding remark
The estimation results on long-term REER and derived exchange rate misalignment has
confirm that fact that the currency has been consistently appreciated in the first three years of
this decade and continue so albeit with much stronger pace in the last three years. In between
these two periods the currency experienced also a highly volatile depreciation period which
peaked as higher as 20 percent before the global crisis. This result needs a proof check,
including some sensitivity analysis regarding model selection and variable choice.
Nevertheless it raises a lot of questions about the way the authority handled the exchange rate
policy. In particularly, it would be interest to know whether this exchange rate misalignment
is an outcome of active, discretionary actions for certain policy objectives, whether the
authority was aware about and took any actions to smooth some of these volatile
misalignments? What would be the impact of this misalignment on some economic
indicators? Better understanding of some of these issues would help to deal better with
economic conditions in the future. While it is not easy to give answers to all these questions,
we try to shed some light on one of these issues: the impact of exchange on exports. The next
Section will deal with this issue in more details.
(POSSIBLEEXTENSION:CHECKNEWMODELWITJGEXPINSTEADOFNFA>>)
-.3
-.2
-.1
.0
.1
.2
00:1 02:1 04:1 06:1 08:1 10:1
-.20
-.15
-.10
-.05
.00
.05
.10
.15
00:1 02:1 04:1 06:1 08:1 10:1

The effects of exchange rate on trade balance: An econometric
assessment
The relationship between exchange rate and trade balance has long been discussed and
explored, both from theoretical and empirical aspects. There are a great number of papers
which estimate the import demand and export function; most of them focus on the aggregate
level such as Senhadji (1998), Vasquez and Charquero (2007), Garg and Ramesh (2005). The
main purpose of these papers is to evaluate the impact of exchange rate variation on the
current account or balance of payment, or in other words, testing the Marshall-Lerner
condition.
Konandreaset al. (1978) estimates import demand function for U.S. wheat from five
regions in which U.S. export of wheat to a region depends on the average production of
wheat in that region (a substitute), relative price of wheat between U.S. and that region,
average income, wheat export under special concessional programs. In their model, there are
two channels that exchange rate can affect U.S. export of wheat to a region: through the
relative price (or real exchange rate between U.S. and that region) and through per capita
income of the region denominated in USD.
Another study of import demand function for a specific commodity is Gunawardanaet al.
(2008) which explores the Thai demand for Australian export of dairy products. This paper
uses the traditional import demand function in which exchange rate and prices are separated.
The relative price is the ratio of export price over an index of competitors price.
Model specification
In order to assess the effects of exchange rate on Viet Nams exports, we will use a
vector error correction model (VECM). This model can be applied to both export quantity
and export revenue. Using export revenue as a dependent variable instead of export quantity
may have some merits due to the following reasons:
The results from both versions may not be much different except for the
magnitude of estimated coefficients: When we take logarithm, export revenue is the
sum of quantity and price and if we bring price over to the other side, under our model
it will go to the error terms. This method therefore still gives us unbiased estimates of
the coefficients
11
.

11
More details are in the Appendices

The results obtained using export quantity will not show the explicit effect of
exchange rate on current account balance and balance of payment which is one of our
ultimate objectives. In contrast, using export revenue will help people see right away
the effect of exchange rate variation on export revenue and hence on current account
balance.
Using export quantity will limit us to only several commodities where data on
export quantity to different destinations are available.
One important advantage of using VECM is that it allows us to understand in more
details the interaction between a set of variables in both long run and short run. The VECM
of export function used in this part is specified below.


= =
= + + + +

p q
t t i t i j t j t t
i j
EXPORT EXPORT EXRATE DEMAND u
1 1 1 1 1 1
1 1
(0.8)


= =
= + + + +

p q
t t i t i j t j t t
i j
EXRATE EXPORT EXRATE DEMAND u
2 1 2 2 2 2
1 1
(0.9)
= + +
t t t
EXPORT c EXRATE (0.10)
In the model, EXPORT is natural logarithm of Viet Nams exports to U.S., DEMAND is
natural logarithm of U.S. total imports as a proxy for U.S. demand, EXRATE is real exchange
rate between VND and USD. Equation (0.10) represents the long-run equilibrium or co-
integrating vector of exports and exchange rate while
1
and
2
represent the speed of
adjustment parameters.
In another option, we separate the nominal exchange rate from the price indices to
explore the impact of both nominal exchange rate and the price factors but in separation on
the export performance. This set-up has it own merits over the first option since usually
business are often making the trade deals in nominal terms (adjusted by inflation in some
cases). So perhaps the real exchange rate may not always fully affect the export decision.
People tend to continue to export even when the real exchange rate appreciates but nominal
exchange rate continues to be devaluated. This has been typical case for Viet Nam during
recent years and this may help to explain why export continues to grow in this environment.
This phenomenon could be labeled as exchange rate illusion which is quite similar to
money illusion in the labour market.

In this case, the VECM with three endogenous variables: Viet Nams export, VND
exchange rate and Viet Nams price index will have the following form
EXP0RI
t
= o
3

t-1
+
1

t-1
++
3

=1
EXP0RI
t-1
+
3

q
=1
PRICE
t-1

+
3

=1
EXRAIE
t-1
+ uSIHP0RI
t-1
+ uSPRICE
t-1
+u
2t
(1.xx)
PRICE
t
= o
3

t-1
+
t-1
++
3

=1
EXP0RI
t-1
+
3

q
=1
PRICE
t-1

+
3

=1
EXRAIE
t-1
+ uSIHP0RI
t-1
+ uSPRICE
t-1
+u
2t
(1.xx)
EXRAIE
t
= o
3

t-1
+
3

t-1
++
3

=1
EXP0RI
t-1
+
3

q
=1
PRICE
t-1

+
3

=1
EXRAIE
t-1
+ uSIHP0RI
t-1
+ uSPRICE
t-1
+u
2t
(1.xx)
where
t-1
and
t-1
are two integrating factors and all variables in log
We use US total imports and US price index as two exogenous variables in the model,
based on, an assumption that seems to be valid that Viet Nam exports are not significant
enough to influence the price and market in the US.
Data
At this stage, US Trade data is used for estimation. We use a high level of disaggregation
at three-digit SITC data. There are 262 sub-categories or sub-sectors in this classification and
Viet Nam exports to the US cover all 262 sub-sectors. Some sub-sectors have been dropped
out from estimation due to insufficient number of observations for regression, so only 195
sub-sectors remained. We may try out other markets/destinations of exports for Viet Nam by
using monthly Global Trade Information System (GTIS) trade database will be used. This
database includes monthly, HS 2-digit import and export data of some 75 countries in the
world and provides comprehensive, consistent information of exports, imports of key trading
partners of Viet Nam. This dataset has been used for measuring REER in the first Section.
One possibility is to use a higher level of aggregation by suing two-digit SITC instead of
three-digit at this stage.
Price and exchange rate data are taken from GSO and Vietcombank as in the case of
measuring REER.


Main findings and implications

Co-integration tests and long-term impact of exchange rate on export

In the previous Section, we adapt a VECM with two co-integrating equations/vectors.
This assumption passed co-integration test for all sub-sectors. Therefore two co-integrating
equations have the following forms
Equation 1: EXP0RT
I
=
I
+
I
EXRATE
Equation 2: PRICE
I
=
I
+
I
EXRATE
i then is considered as a long-term elasticity of export of sub-sector i with respect to
exchange rate.
Equation (1) and (2) reflects restrictions imposed on the dynamic long-term relationships
between exchange rate and exports, on the one hand, and between the exchange rate and price
level, on the other hand. To justify these restrictions, a Granger causality test is needed. We
have performed these tests for all 196 subsectors and results for Granger causality between
exports and exchange rate are given in Table A4.
Table 5: Export coverage of pairwise Grange Causality Tests between Exchange Rate and
Exports
Pairwise Grange
Causality Tests between
Exchange Rate and
Exports

1% significant
level
5% significant
level
10% significant
level
Not
significant
Total
1% significant level 10.7 1.0 11.1 3.4 26.2
5% significant level 14.8 10.3 1.4 2.3 28.9
10% significant level 6.3 0.1 10.0 9.2 25.7
Not significant 1.1 0.4 0.9 16.9 19.2
Total 32.9 11.8 23.4 31.9 100.0
Table 5 summaries these test results for all 195 subsectors with export coverage. Each
row of Table 5 shows four level of significance of the test that exchange rate do not Granger
cause exports while each column shows these four level of significance of the test that
exports do not Granger cause exchange rate. For example, row 1 shows that 26.2% of total

exports fall into subsectors in which at 1% level of significance, one cannot reject the
hypothesis that exchange rate Granger cause exports. Out of these 26.2%, we cannot reject
a two-way causality at the same 1% level in those subsectors which accounts for 10.7 percent
of total exports. It can be seen from Table 5 that, in most cases one cannot reject the
hypothesis that exchange rate Granger cause exports.
Table 6 shows the estimation results for long-term elasticities for exports based on the
above-specified model. It turns out that nearly 60 percent of Viet Nams exports do not
respond significantly to change in exchange rate in the long-term. About one-quarter of total
exports would increase by less than 10 percent if exchange rate depreciates by 1%. There are
some abnormal cases when the long-term coefficients are of wrong sign, but either they are
statistically insignificant or they have a very tine share in total exports. So this abnormality
doesnt change much the whole picture of how exchange rate would affect exports. Table A5
give more details at the sub-sector level of these estimation results.

Table 6: Sign and level of significance of long-term exchange rate elasticity (measured by
share in total Viet Nam exports)
1% level of
significance
5% level of
significance
10% level of
significance
Not
significant
Total
(Positive) Correct sign 32.44 2.96 3.57 29.17 68.14
abnormal- 0.31 0.01 0.32
less then -10 5.21 0.2 3.49 1.89 10.79
between -10 and -5 25.32 0.11 0.07 8.1 33.6
between -5 and 0 1.6 2.65 0.01 19.17 23.43
less than 5 17.88 17.88
Negative (wrong sign) 0.46 0.33 2.56 28.49 31.84
between 5 and 10 0.37 0.02 0.32 0.71
more than 10 0.01 0.32 2 10.29 12.62
abnormal+ 0.08 0.01 0.54 0.63
TOTAL 32.9 3.29 6.13 57.66 99.98

The VEC models also give us information on how export would react to a change in
nominal exchange in the short-term. This information can be obtained from impulse
responses functions derived from estimation results. These impulse responses data for the
whole set of sub-sectors is given in Table A5. It shows how export responds to a one-off
shock in exchange rate over time. with 8 time interval or 2 years time. Based on this
information, we construct a transitional diagram as shown in Figure 13



Figure 13: Short-term responses of exports to a exchange rate shock : Transitional
impulse responses

The horizontal axis depicts the values of responses of individual sub-sectors to a
exchange rate shock in the first period. It can be seen that these responses are very different
across sub-sectors. Some sectors responded with increased exports, some see their declined.
That is quite normal in the short-term because of some adjustment costs involved (J-curve is
just one justification for the decline of exports due to a depreciation shock. The vertical axis
places the same responses but in two subsequent periods with two time intervals, e.g. period 2
(blue dots) and period 4 (red dots). Placing all sub-sectors on this diagram helps us to
understand how these sub-sectors have been affected by the shock overtime. If a sub-sector
is in the first quadrant (Q1) that means the sub-sector continues to gain from depreciation
over time. If it is in the third quadrant, it has been negatively affected all the time. If a sub-
sector is in quadrant IV, gains from depreciation are very much short-lived: these sub-sectors
are called shouting stars. Finally, a sub-sector clear exhibits J-curve pattern if it is in the
second quadrant: it suffers some losses in the first period but recovers in the subsequent
times.
To gain better understand on the extent an exchange rate shock could affect the whole
export sector, we construct a similar bubble diagram (Figure 14) attaching each sector in the
diagram to its relative share in total exports to US. It can be seen in Figure 14 that most of
subsectors which have higher share in total exports fall into rising stars category, gaining

continuously from a depreciation shock. This implies that overall a depreciation shock can
have significant export gains.
Figure 14: Short-term responses of exports to a exchange rate shock : Transitional
impulse responses in bubble diagram.


Table 7 is a another version of transitional diagram, The difference is that it is
represented in a matrix form and weighted in each cell by export volumes of the
corresponding sub-sector. All sub-sectors are now divided into different categories depending
on the extent it is affected by the shock.
Table 7: Export values affected by a exchange shock in two periods: 2 and 4
Period_2 Period4
Drops by
more than
10%
Drops
between 0
and 2.5 %
Gains
between 0
and 2. 5%
Gains
between 2,5
and 5 %
Total
Drops by more than 10% 7.07 0.11 0.28 7.45
Drops between 0 and 2.5 % 0.31 1.85 2.16
Gains between 0 and 2% 12.27 3.46 74.54 90.27
Total 19.60 3.58 76.68 0.00 100.00
It can be now seen from Table 7 that nearly third-quarter of exports (74.54%) gains from
depreciation shock in two subsequent periods 2 and 4, e.g. in the first year after the shock.

One-quarter suffer losses and about one-fifth suffers continued losses in both two periods. A
similar picture, albeit with slightly difference in distribution can be seen in Table 8 which
shows transitional matrix between period 6 and period 8.
Table 8: : Export values affected by a exchange shock in two periods: 6 and 8
Period_6 Period8
Drops by
more than
10%
Drops
between 0
and 2.5 %
Gains
between 0
and 2. 5%
Gains
between 2,5
and 5 %
Total
Drops by more than 10%
18.60 0.42 0.47 19.49
Drops between 0 and 2.5 %
1.43 1.43
Gains between 0 and 2%
0.17 0.15 56.51 56.83
Gains between 2 and 5%
22.03 22.03
Total
18.77 0.58 80.49 0.03 100
Concluding remark

Using a standard econometric model to estimate the impact of a depreciation shock on
exports has shown that the impact in general positive both in long term and short-term. The
extent and pattern of impact, however vary significantly across sub-sectors. There are some
sector that could gains permanently and significantly from such a shock over time. At the
same time, there are also losers of this shock, but overall the shock seems to be favorable to
the whole export sector. (TBC)

POSSIBLE EXTENTION: THIRD PARTY IN THE MARKET. CHINESE FACTOR ON
VIET NAM EXPORT



Towards an flexible and effective ER management mechanism:
Public Policy Dimension of ER management

TENTATIVE. NOT FOR COMMENTS TO THIS
STAGE
This Section will highlight some key issues of ER management mechanism with
emphasis placed on the cost and benefits of different policy options for ER regimes. The
impact of change in ER on foreign debts, on firms performances and other broader
macroeconomic indicators will be considered. Perhaps a quantitative model that links the
exchange rate with these key policy variables is examined. One possibility is to use IMFs
DSA model for assessing impact of an ER change of the countrys indebtedness.
Banks information of firms trade and foreign exchange balances is crucial for this analysis.
So the access to this information is critical for the studys implementation.
In-depth interviews of some firms are not excluded because this is an important source of
information that reveals firm-level foreign exchange risk management.
ER Management and Policy Objectives
In this part we evaluate the relationship between the current ER arrangements and the
policy objectives of controlling inflation and reducing trade deficit. These objectives have
received great attention in ER management in Viet Nam.
Stable exchange rate arrangements and inflation control
In theory, stabilizing the ER could boost trust in domestic currency, force the
government to control budget deficit and credit growth and thus improve policy credibility.
When these factors are controlled, inflation will decline and stabilize. Moreover, in an
economy with high level of dollarization like Viet Nam, with the threat of return inflation and
the reduction of trust in VND, people will turn their back against domestic currency and shift
to gold and USD for savings and self-insurance. Thus, managing the ER can affect inflation
because ER changes not only affect tradable goods but also non-tradable if they are priced in
USD. These are the reasons that contribute to the hesitation of SBV in letting VND/USD rate
be determined by market forces over the past years.

Analysis from the previous section shows that in the past, Viet Nams ER management
followed a two-phase cycle with devaluation of VND during periods of economic instabilities
and reverting to a rigid regime when the economy regained its stability (see figure 1).
During the beginning of the 1990s, and after witnessing the terrible economic impacts of
skyrocketing inflation, Viet Nam had tried to control inflation to stabilize macroeconomic
conditions and restore public trust in VND. During this period, a rather fixed ER arrangement
as had been used in practice were appropriate. Inflation had been controlled effectively
during 1992-1996.
However, this success was not repeated in later periods. During the Asian financial crisis
and the recovery years (1997-2003), VND had been continuously devalued. Yet high
inflation (around 10%) did not persist and this period even ended in a deflation sub-period of
2000-2001. Also, the application of relatively rigid ER arrangements from 2004 to 2008 did
not help achieve inflation control. Inflation rate increased over the years and the period ended
with high inflation (20% in 2008).
Why were there such various effects on inflation under the same ER arrangement over
different periods? Studies by Vo Tri Thanh et al. (2000), Camen (2006) and other authors
show that the rapid expansion of money supply and credit growth are major causes of high
inflation in Viet Nam over the past two decades. An expansionary monetary policy together
with inflation expectation often leads to actual inflation in the next phase of the business
cycle. ER policies amplify the impacts of contemporary monetary policy on the economy.
This explains why during 1992-1996 when the economy is effectively controlled, a stable ER
arrangement contributed to the stabilization and reduction of inflation. It also explains why
from 2004 to 2008, inflation returned despite the rigid ER arrangement. The main reason for
return inflation was the rapid increase in money supply and credit in the economy during
these years.
However, it should be noted that rapid increase in money supply and credit cannot
explain the low inflation period during 1997-2003. This period of low inflation was due to the
economic crisis and the decline in aggregate demand.That is why the big devaluation of VND
(around 36%) during this period did not cause inflation to return. Similarly, in 2009, when the
world economy was in recession, reduction in world prices helped ease inflation pressure in
Viet Nam down to 6.88% from 20% in 2008.

Yet, a recent quantitative study by Nguyen Thi Thu Hang and Nguyen Duc Thanh (2011)
showed a positive correlation between devaluation and inflation in Viet Nam during 2001-
2010. This result is different from previous studies which show no clear relation between the
two variables. This implies that the volatilities in the exchange markets that occurred in both
2009 and 2010 have had their impacts on the public expectations and speculation. Thus, high
inflation causes expectation of devaluation of VND while devaluation in turn causes inflation
expectation and thus real inflation as expectation has always been the most important
determinant of inflation in Viet Nam.
The second reason that explains the different effects of the stable ER arrangement is
closely related to the impossible trinity
12
. Before, in the closed economy where there were no
free flows of capital, a relatively fixed ER arrangement accompanied by monetary policy to
control inflation was feasible and in fact proved to be effective during 1992-1996. However,
as the Vietnamese economy integrates more into the world economy, even though Viet Nam
has not yet completely freed its capital account, the easier flows of capital pose new
challenges in implementing the policies in the impossible trinity.
Viet Nams balance of payments shows that for many years before 2006, foreign
exchange inflow to Viet Nam was not large. Until 2005, foreign exchange inflows reached
only around USD 9 billion (not including unofficial inflows). However, within only two
years 2006-2007, foreign exchange actually flooded domestic market due to foreign indirect
investment, making official reserves increase by 1.6 times the cumulative reserves. This
situation posed new challenges for monetary policy in 2007. Within the first 6 months of
2007, SBV had to inject a large amount of VND (equivalent to roughly USD 9 billion) to buy
foreign exchange to keep the ER stable. The excess supply of domestic currency was not
timely sterilized. At the same time, raw material prices increased rapidly. The result was the
rise of inflation, which for the first time in the decade reached double digits.However, even if
the injected money had been sterilized, we would not be able to sustain the interest rate. This
is an unprecedented and difficult task for SBV. It was clear that the policy of keeping stable
the ER during 2005-2007 did not help control inflation, instead it contributed to the increased
pressure for higher inflation due to the fact that SBV needed to buy USD to maintain the set

12
Impossible trinity states that we cannot achieve at the same time all three of the following: (i) a fixed ER
regime; (ii) free capitalflows and (iii) the independence of monetary policy.


ER. Clearly, international integration brings with it new challenges for SBV and ER
management.
In short, ER policy by itself cannot be used effectively to control inflation. Keeping the
ER stable without controlling monetary and credit growth as well as other macroeconomic
instruments to manage total demand will not be effective in controlling inflation especially
with relatively free movement of capital. On the contrary, if total demand and monetary
policy are effectively managed, an ER arrangement that follows market determinants will not
necessarily create inflation. It is the hesitation, inconsistency and lack of transparency in ER
policy that can create inflation expectation which in turn can change in to real inflation in the
next period if macroeconomic policies are not oriented toward better controlling inflation.
Exchange rate arrangement and trade balance
The analysis of ER trends in the previous sections shows a real appreciation trend for
VND over the past few years and this has considerably reduced the competitiveness of Viet
Nams export in world markets, especially in more recent years. This fact is evident in Viet
Nams large and prolonged trade deficit since the beginning of the decade. The trade deficit
became alarmingly large since Viet Nam joined WTO in 2006, reaching USD 18 billion in
2008. In 2009, due to economic crisis and import declining faster than export, trade deficit
was down to USD12.3 billion. Trade deficit was USD12.4 billion in 2010 partly due to the
devaluation efforts by SBV.
13

Trade deficit is not a bad thing itself. When an economy is open to the world and has a
high growth rate, the demand for imports will increase rapidly together with the flows of
foreign investment for domestic economic growth. This is especially true for Viet Nam
because more than 90% of total import value is in materials. It should be noted that Viet Nam
is a small country and thus export and import values depend heavily on world market supply,
demand and prices. The volatilities of world material prices together with the decline in
demand due to economic crisis are major determinants of Viet Nams trade deficit.
However, if the ER is managed too rigidly, a worsening trade deficit will cause adverse
effects on the economy. Figure 5shows a close relationship between Viet Nams trade deficit
and real ER trend. During the 1992-1996 period, despite the relative stability of the ER, Viet
Nams inflation rate was much higher than that of the US making VND appreciate in real
terms. Associated with this real appreciation trend was the ever enlarging trade deficit. The

13
Trade deficit data are from GSO which uses fob for export prices and cif for import prices.
1997-200
inflation
with nom
increase
recent ye
ER. The
inflation
large and
Figu
Und
is the fac
increases
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reduce tr
How
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by a time
foreign
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1
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1
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03period wa
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minal ER.Tr
toward the
ears, since 20
nominal de
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d prolonged t
ure5.Trade D
er market m
ct that when
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ned by mark
ade deficit.
wever, Viet N
account and
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exchange
s.Figure8clea
60
70
80
90
100
110
120
130
140
1
9
9
2
1
9
9
3
Tra
No
as a deprec
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rade deficit
end of the p
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evaluations s
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trade deficit
Deficits and V
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mechanism, n
n trade defic
omestic curr
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ket condition
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in recent ye
or foreign ex
tion of dome
markets an
arly shows
1
9
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4
1
9
9
5
1
9
9
6
1
9
9
7
ade deficits (R
ominal ER (bas
iation perio
D also deprec
was relativ
period due t
trong real ap
since 2008
et Nam and
.
VND/USD E
ce: IMF, GSO
nominal ER
cit is large a
rency deprec
y promotes e
ns will thus
nt ER arran
ears even co
xchange due
estic currenc
nd creating
the slow po
1
9
9
7
1
9
9
8
1
9
9
9
2
0
0
0
RHS, mil USD)
se year = 2000)
od for VND
ciated in rea
ely small fo
to the fact th
ppreciation o
have not be
the US. Ass
ER, 1992-20
and authors c
can help res
and prolonge
ciate relative
exports and
promote ex
gement faile
ontributed to
e to large and
cy, causing c
g an upsu
olicy reactio
2
0
0
1
2
0
0
2
2
0
0
3
2
0
0
4
Rea
)
D in nomina
al terms and
or most of t
hat RE ceas
of VND due
een able to
sociated with
010
alculation(201
store trade b
ed, the dema
ely against th
makes imp
xports, redu
ed to achiev
o the worsen
d prolonged
continuous e
urge in spe
on by SBV
2
0
0
5
2
0
0
6
2
0
0
7
2
0
0
8
al ER (base ye
al terms and
real ER foll
the period b
ed to increa
to the rigidi
compensate
h this real ap
1)
balance. The
and for fore
he foreign c
ports more c
ce imports
e such adjus
ning of trad
trade defici
excess deman
eculative b
over the pa
0
20
40
60
80
10
12
14
16
18
20
2
0
0
8
2
0
0
9
2
0
1
0
ar = 2000)
d due to lo
lowed closel
but started t
ase. The mor
ity of nomin
for the larg
ppreciation

basis for th
eign exchang
currency. Th
costly. An E
and therefor
stments in th
e deficit. Th
it was not m
nd pressure i
black mark
ast few year
000
000
000
000
0000
2000
4000
6000
8000
0000

w
ly
to
re
nal
ge
is
his
ge
his
ER
re
he
he
met
in
ket
rs.
Nominal
2006 to e
to late N
prolonge
credibilit

It sh
managed
policy ch
consider
devaluati
import-co
such dev
growth a
processes
expectati
policies a
ER was kep
early 2008. S
November 20
d pressure
ty and cause
Figure 6.M
hould also b
d floating ar
hoices, when
both costs a
ion decision
ontent such
valuation wi
and exports
s from imp
ion which c
are not cons
15000
16000
17000
18000
19000
20000
21000
2
0
0
6
M
1
pt rigid desp
Similarly, an
009. The rig
on the fore
d an upsurge
Monthly Ne
be noted th
rrangement),
n deciding w
and benefits
n will benef
as resource
ill make imp
of goods w
ported mater
ould turn in
sistent with
2
0
0
6
M
4
2
0
0
6
M
7
2
0
0
6
M
1
0
2
0
0
7
M
1
2
0
0
7
M
4
Net
pite a large a
n undesirabl
gidity and u
eign exchan
e in speculat
et Export (R
1/2
Source:GSO
hat with the
SBV alway
whether to de
of such deci
fit exports, e
es and agricu
port more c
with high im
rials. At th
nto real infla
inflation co
2
0
0
7
M
4
2
0
0
7
M
7
2
0
0
7
M
1
0
2
0
0
8
M
1
2
0
0
8
M
4
export(milUS
and continuo
le lag in poli
undesirable l
nge markets,
tive activitie
RHS) and N
2006-6/2011

and Vietcomb
e current da
ys has to fa
evalue VND
ision in a pa
especially th
ultural, mar
costly, adver
mport-content
he same tim
ation in the
ontrol object
2
0
0
8
M
4
2
0
0
8
M
7
2
0
0
8
M
1
0
2
0
0
9
M
1
2
0
0
9
M
4
SD)
ous trade def
icy response
lags in polic
, reduced tr
es.
Nominal VND

ank(2011)
aily ER man
ace a policy
or keep stab
articular circu
hose goods
rine and fore
rsely affecti
t such as go
me, devaluat
following p
tive. Moreov
2
0
0
9
M
4
2
0
0
9
M
7
2
0
0
9
M
1
0
2
0
1
0
M
1
2
0
1
0
M
4
Commercialb
ficit for mon
e can be seen
cy response
rust in VND
D/USD ER
nagement (r
trade-off.L
ble the ER, S
umstance. F
with low (o
estry produc
ing imports
oods that V
tion can cre
period if ma
ver, devalua
2
0
1
0
M
7
2
0
1
0
M
1
0
2
0
1
1
M
1
2
0
1
1
M
4
bankER
nths from la
n from Marc
created mor
D and polic
(LHS),

rather than
ike any othe
SBV needs t
or example,
or even zero
cts. Howeve
for domest
iet Nam onl
eate inflatio
acroeconom
ation can hu
3500
3000
2500
2000
1500
1000
500
0
500
1000

ate
ch
re
cy
a
er
to
a
o)
er,
tic
ly
on
mic
urt

non-tradable (domestically produced and consumed) goods due to the high level of
dollarization through linkages between tradable and non-tradable sectors. These problems can
be more serious if such devaluation decision is sudden and inconsistent with previous
statements of SBV because it increases speculative activities, reduces trust in VND and
policy credibility and increases transaction costs as discussed above. These are difficult tasks
for SBV due to the increasing pressure from conflicting interest groups on government
policy.


Conclusion and Policy Implications







Some final notes


References
Camen, U. (2006), Monetary Policy in Viet Nam: The Case of a Transition Country,
BISWorking Paper No. 31. Bank for International Settlement, Basel.
Chinn, Menzie, 2000, The Usual Suspects: Productivity and Demand Shocks and Asia-
Pacific Real Exchange Rates, Review of International Economics 8(1): 20-43.
DeGregorio, Jose and Holger Wolf, 1994, "Terms of Trade, Productivity, and the Real
Exchange Rate," NBER Working Paper #4807 (July).
Gabriel Di Bella, Mark Lewis, and Aurlie Martin (2007): Assessing Competitiveness and
Real Exchange Rate Misalignment in Low-Income Countries. IMF Working Paper,
August 2007. Policy Development and Review Department
GSO (2011), GSO Statistics
Hsieh, David, 1982, "The Determination of the Real Exchange Rate: The Productivity
Approach," Journal of International Economics 12(2): 355-362.
IFS (2011), International Financial Statistics
IMF (2000),Annual Report on Exchange Arrangements and Exchange Restrictions.
IMF (2008),Annual Report on Exchange Arrangements and Exchange Restrictions.
Mai Thu Hien (2007), Solutions for Exchange Rate Policy of Transition Economy of Viet
Nam, Doctoral dissertation, Martin Luther Universitat
MalinAdolfson (2002)Implications of Exchange Rate Objectives under Incomplete Exchange
Rate Pass-Through. Bank Working Paper Series. June 2002, No135
Menzie D. Chinn (2005). A Primer on Real Effective Exchange Rates: Determinants,
Overvaluation, Trade Flows and Competitive Devaluation..NBER Working Paper No.
11521. August 2005
Nguyen Thi Thu Hang (2011), Should We Take the Foreign Exchange Market for Granted?
Working Paper.
Nguyen Thi Thu Hang and Nguyen Duc Thanh (2011), Macroeconomic Determinants of
Viet Nams Inflation during 2000-2011: Evidence and Analysis, VEPR Working Paper,
http://vepr.org.vn/en/index.php?option=com_content&task=view&id=710&Itemid=487
Nguyen Thi Thu Hang, Dinh Tuan Minh, To Trung Thanh, Le Hong Giang, Pham Van Ha
(2010), Exchange Rate Policy: Choices for Recovery, in Nguyen Duc Thanh edt. Viet
Nam Annual Economic Report 2010: Choices for Sustainable Growth, Tri Thuc
Publishing House.
Nguyen Tran Phuc (2009), Implications of Exchange Rate Policy for Foreign Exchange
Market Development: Viet Nam, 1986-2008, Griffen University, Australia
Nguyen Tran Phucv Nguyen Duc-Tho, (2009), Exchange Rate Policy in Viet Nam, 1985-
2008, ASEAN Economic Bulletin, Vol. 26, No. 2, pp. 137-163
Vo Tri Thanh, Dinh Hien Minh, DoXuan Truong, Hoang Van Thanh v Pham Chi Quang
(2000), Exchange Rate Arrangement in Viet Nam: Information Content and Policy
Options, East Asian Development Network (EADN), Individual Research Project
WEO (2011), World Economic Outlook Statistics

Appendices
Table A 1. Viet Nams ER Arrangements, 1989-2011
Time Arrangement De facto ER characteristics
Before 1989 Multiple ER
arrangement
- Three-tier ER system
- A parallel black foreign exchange marketexisted.

1989-1990 Crawling bands - Single official ER (OER).
- OER was adjusted based on inflation rates, interest rates, balance
of payment and ER in the parallel black market.
- Commercial banks were allowed to set ERs within a band of +/-
5% around the OER.
- Tight control over the use of foreign exchange.

1991-1993 Pegged exchange rate
within horizontal bands
- Tighter control over the use of foreign exchange and restrictions
on border exit.
- Establishment of an official fund for ER stabilization.
- Establishment of two foreign exchange transaction floors in Ho
Chi Minh City and Hanoi.
- OER was set based on auction-based rates at the two floors; SBV
played a dominant role in the two floors.
- Commercial banks were allowed to set their own ERs within a
band of +/-0.5% around the announced OERs.

1994-1996 Conventional fixed peg
arrangement
- Inter-bank foreign exchange market replaced the two transaction
floors; SBV continued to play dominant role.
- OER were stable and set by SBV basing on inter-bank ERs.
- Commercial banks were allowed to set their own ERs within a
band of +/-0.5% around the announced OERs. ER band was
widened +/-0,5% to +/-1% (11/1996).
- OER was stable at around 11.100VND/USD.

1997-1998 Crawling bands - ER band was widened from +/-1% to +/-5% (02/97) and from +/-

5% to +/-10% (13/10/97) then narrowed to +/-7% (7/8/98).
- OER was devaluated to 11,800VND/USD (16/02/98) and then to
12,998 VND/USD (07/08/98).

1999-2000 Conventional fixed peg
arrangement
- OER was set at the average of inter-bank rates of the previous
business day (since 28/2/99)
- ER band was reduced to +/-0.1%.
- OER was stable at around 14,000VND/USD.

2001-2007 Crawling peg - OER was gradually devaluated from 14,000VND/USD in 2001 to
16,100 VND/USD in 2007.
- ER band for commercial banks was widened to +/-0.25% (from
1/7/02 to 31/12/06) and to +/-0.5% in 2007.

2008-2011 Crawling bands - OER was gradually devaluated to 16,100VND/USD at the
beginning of 2008 then to 16,500 VND/USD (from 06/08 to 12/08),
then to 17,000 VND/USD (from 12/08 to 11/09), to 17,940
VND/USD (from 11/09 to 01/10), to 18,544 VND/USD (from 02/10
to 08/10), again to 18,932 VND/USD(from 08/10 to 02/11), and
then to 20,693 (from 02/2011).
- ER band was adjusted many times, widened to +/-0.75% (from
23/12/07 to 09/03/08), then to +/-1% (from 10/03/08 to 25/06/08),
to +/-2% (from 26/05/08 to 05/11/08), to +/-3% (from 06/11/08 to
23/03/09), to +/-5% (from 24/03/09 to 25/11/09), narrowed to +/-3%
(from 26/11/09 to 11/02/2011), and then narrowed to +/-1% (from
11/02/2011).


Source:Authorss update from Nguyen Thi Thu Hanget al. (2010)







8.4
8.5
8.6
8.7
8.8
8.9
00 01 02 03 04 05 06 07 08 09 10
LNREER LNREER_HP
-.8
-.6
-.4
-.2
.0
.2
.4
00 01 02 03 04 05 06 07 08 09 10
LNNFABS LNNFABS_HP
-4.36
-4.34
-4.32
-4.30
-4.28
-4.26
-4.24
-4.22
-4.20
-4.18
00 01 02 03 04 05 06 07 08 09 10
LNPROD LNPROD_HP
-.10
-.05
.00
.05
.10
.15
.20
.25
.30
00 01 02 03 04 05 06 07 08 09 10
LNTOT LNTOT_HP
-2.9
-2.8
-2.7
-2.6
-2.5
-2.4
-2.3
-2.2
-2.1
00 01 02 03 04 05 06 07 08 09 10
LNOPEN LNOPEN_HP
-2.4
-2.2
-2.0
-1.8
-1.6
-1.4
-1.2
-1.0
-0.8
-0.6
00 01 02 03 04 05 06 07 08 09 10
LNGEXP LNGEXP_HP
-7.2
-6.8
-6.4
-6.0
-5.6
-5.2
-4.8
00 01 02 03 04 05 06 07 08 09 10
LNFDI LNFDI_HP


Null Hypothesis: Unit root (individual unit root process)
Series: LNPROD, LNTOT, LNOPEN, LNFDI, LNGEXP, LNNFABS,
LNNFACB, LNREER, LNREERSDR
Date: 06/28/11 Time: 16:10
Sample: 2000Q1 2010Q2
Exogenous variables: Individual effects
Automatic selection of maximum lags
Automatic lag length selection based on SIC: 0 to 5
Total number of observations: 354
Cross-sections included: 9
Method Statistic Prob.**
ADF - Fisher Chi-square 42.8554 0.0008
ADF - Choi Z-stat -2.40414 0.0081
** Probabilities for Fisher tests are computed using an asymptotic Chi
-square distribution. All other tests assume asymptotic normality.

Intermediate ADF test results KEYVAR

Series Prob. Lag Max Lag Obs
LNPROD 0.1268 4 9 37
LNTOT 0.6984 0 9 41
LNOPEN 0.3620 0 9 41
LNFDI 0.2958 1 9 40
LNGEXP 0.0000 0 9 41
LNNFABS 0.1121 5 9 36
LNNFACB 0.5394 1 9 40
LNREER 0.3089 2 9 39
LNREERSDR 0.6413 0 9 39

Null Hypothesis: Unit root (individual unit root process)
Series: LNPROD, LNTOT, LNOPEN, LNFDI, LNGEXP, LNNFABS,
LNNFACB, LNREER, LNREERSDR
Date: 06/28/11 Time: 16:10
Sample: 2000Q1 2010Q2
Exogenous variables: Individual effects
Automatic selection of maximum lags
Automatic lag length selection based on SIC: 0 to 4
Total number of observations: 353
Cross-sections included: 9
Method Statistic Prob.**
ADF - Fisher Chi-square 185.887 0.0000
ADF - Choi Z-stat -11.4095 0.0000
** Probabilities for Fisher tests are computed using an asymptotic Chi
-square distribution. All other tests assume asymptotic normality.

Intermediate ADF test results D(KEYVAR)

Series Prob. Lag Max Lag Obs
D(LNPROD) 0.0000 0 9 40
D(LNTOT) 0.0001 0 9 40
D(LNOPEN) 0.0001 0 9 40
D(LNFDI) 0.0000 0 9 40
D(LNGEXP) 0.0000 4 9 36
D(LNNFABS) 0.0221 0 9 40
D(LNNFACB) 0.0018 0 9 40
D(LNREER) 0.0192 1 9 39
D(LNREERSDR) 0.0000 0 9 38



Modeling the impact of exchange rate on export and import:Quantity or value?

Consider the following model specification
log(I) = o + [
1
- log(EXRAIE) +[
2
- log(EHAN) + e (1)
and an alternative specification which uses quantity of export instead of export volume as a
dependent variable
log() = o + [
1c
- log(EXRAIE) +[
2d
- log(EHAN) + - log(P) + (2)
Since V=P* Q, equation (1) can be expressed as follows:
log(I) = log(P - ) = log(P) + log()
= o + [
1
- log(EXRAIE) +[
2
- log(EHAN) + e
or
log() = o +[
1
- log(EXRAIE) +[
2
- log(EHAN) - log(P) +e
Therefore,equation (1) can be seen as a restricted version of equation (2), given that =-
1. It follows that, even when equation (1) is selected, we are still able to get unbiased
estimations of key variables of interest e.g. exchange rate and foreign demand.


Table A 2: Viet Nam destinations of exports2005-2010
countryname 2005 2006 2007 2008 2009 2010(*) total
Share
in
total
UnitedStates 6,631.2 8,566.7 10,632.8 12,901.1 12,287.8 7,972.6 58,992.1 20.9 20.9
Japan 4,538.6 5,289.9 6,133.6 9,110.4 6,957.5 4,532.9 36,563.0 12.9 33.8
China 2,549.3 2,485.9 3,214.4 4,337.0 4,741.1 3,634.1 20,961.8 7.4 41.2
Australia 2,574.0 3,738.1 3,832.9 4,457.9 2,460.0 1,680.1 18,743.0 6.6 47.8
Singapore 1,813.8 1,650.2 2,141.1 2,382.6 2,269.2 1,000.9 11,257.9 4.0 51.8
Germany 1,719.1 2,173.9 2,946.9 3,523.9 3,187.3 2,166.0 15,717.0 5.6 57.4
UnitedKingdom 1,348.7 1,497.1 1,688.7 1,846.1 1,589.4 970.4 8,940.4 3.2 60.5
France 1,188.9 1,467.6 1,719.2 1,828.0 1,679.6 1,033.2 8,916.5 3.2 63.7
Malaysia 1,020.9 1,415.9 1,839.5 2,333.2 2,060.6 1,261.0 9,931.0 3.5 67.2
SouthKorea 694.0 924.9 1,391.6 2,037.1 2,370.0 1,619.6 9,037.1 3.2 70.4
Thailand 890.5 904.4 1,205.5 1,458.9 1,397.4 778.1 6,634.8 2.3 72.8
Netherlands 665.1 836.5 1,050.1 1,231.3 1,173.1 787.6 5,743.7 2.0 74.8
Belgium 746.0 906.5 1,079.8 1,334.7 879.4 492.0 5,438.4 1.9 76.7
Philippines 777.9 672.8 842.7 1,653.4 1,277.3 1,260.9 6,485.1 2.3 79.0
Taiwan 689.6 843.4 1,027.3 1,191.0 906.5 629.9 5,287.7 1.9 80.9
Spain 678.1 863.5 1,141.5 1,584.3 1,275.8 757.4 6,300.5 2.2 83.1
Italy 585.3 764.0 950.1 1,177.9 970.6 633.3 5,081.2 1.8 84.9
HongKong 399.1 516.9 651.7 888.4 1,176.3 922.0 4,554.5 1.6 86.5
Indonesia 439.0 846.8 994.2 717.7 653.7 496.1 4,147.6 1.5 88.0
Canada 462.6 576.5 710.3 893.2 930.2 590.7 4,163.5 1.5 89.5
Switzerland 156.6 179.2 215.7 322.6 1,869.7 1,514.4 4,258.2 1.5 91.0
Russia 171.1 348.2 518.7 849.1 660.6 465.7 3,013.4 1.1 92.0
Mexico 274.4 376.9 473.3 614.5 613.5 440.0 2,792.6 1.0 93.0
Turkey 110.0 189.4 313.3 443.7 456.9 405.1 1,918.4 0.7 93.7
Austria(Customs) 185.7 237.4 302.5 384.7 290.9 186.3 1,587.4 0.6 94.3
Sweden 157.1 211.0 257.3 281.0 252.8 152.1 1,311.3 0.5 94.7
India 120.3 159.2 159.4 388.1 427.0 296.8 1,550.7 0.5 95.3
Poland 91.9 174.8 241.1 279.1 184.9 111.2 1,082.9 0.4 95.6
Denmark 124.2 139.8 169.4 207.6 207.0 116.5 964.4 0.3 96.0
Norway 103.7 116.3 141.7 180.5 164.4 108.2 814.7 0.3 96.3
SouthAfrica 75.0 92.7 135.0 169.9 222.0 221.6 916.2 0.3 96.6
Brazil 47.8 75.6 106.8 200.1 219.6 245.5 895.3 0.3 96.9
CzechRepublic 37.4 73.5 97.3 108.2 102.6 73.1 492.1 0.2 97.1
Greece 71.3 81.5 107.4 119.1 99.1 53.0 531.5 0.2 97.3
NewZealand 64.7 85.1 91.6 109.6 92.8 59.9 503.7 0.2 97.5
Ukraine 41.3 54.3 82.8 171.3 116.3 59.1 525.1 0.2 97.6
Ireland 73.5 96.4 133.4 132.2 102.1 55.1 592.7 0.2 97.9
Slovakia 11.5 15.5 89.0 136.7 145.7 77.9 476.3 0.2 98.0
Finland 42.2 53.3 68.3 87.7 71.0 49.3 371.9 0.1 98.2
Hungary 23.9 30.1 59.9 59.7 80.8 71.5 325.8 0.1 98.3

Chile 38.8 53.6 55.1 80.6 126.2 51.2 405.4 0.1 98.4
Algeria 28.2 45.1 55.1 99.3 94.2 73.1 395.0 0.1 98.6
Romania 28.3 44.9 38.2 66.4 86.5 62.5 326.8 0.1 98.7
Argentina 16.0 44.7 51.7 96.5 76.1 55.3 340.3 0.1 98.8
CotedIvoire 91.4 65.0 36.6 73.1 79.4 31.3 376.9 0.1 98.9
Portugal 20.8 26.3 44.1 68.3 68.5 41.1 269.2 0.1 99.0
Bulgaria 17.4 23.7 47.7 83.9 49.7 29.8 252.2 0.1 99.1
Serbia 17.4 28.2 50.5 75.4 68.8 27.6 267.8 0.1 99.2
Croatia 20.9 31.1 47.0 62.7 52.5 27.2 241.3 0.1 99.3
Colombia 12.1 25.6 41.7 65.0 60.8 41.4 246.7 0.1 99.4
Senegal 37.2 37.3 26.0 39.8 70.0 24.7 234.9 0.1 99.5
Morocco 16.0 19.7 39.5 47.1 46.8 25.2 194.2 0.1 99.5
Peru 15.8 19.7 26.6 44.1 42.7 24.3 173.3 0.1 99.6
Venezuela 13.0 21.7 25.9 43.3 52.8 21.3 178.1 0.1 99.7
SriLanka 10.6 15.5 20.9 28.1 22.3 21.3 118.7 0.0 99.7
Slovenia 8.9 10.8 12.6 18.8 13.1 11.0 75.2 0.0 99.7
Lithuania 4.9 8.0 13.3 25.4 27.2 8.2 87.1 0.0 99.7
Jordan 4.4 6.4 17.5 28.1 26.0 15.6 98.1 0.0 99.8
Kazakhstan 4.3 5.1 12.0 23.2 22.0 15.1 81.7 0.0 99.8
Cyprus 4.6 7.0 8.8 12.0 11.3 7.0 50.6 0.0 99.8
Kenya 18.1 7.7 14.7 16.5 7.0 64.0 0.0 99.9
Ecuador 6.7 6.0 4.3 8.9 18.2 7.6 51.7 0.0 99.9
Estonia 1.9 4.3 4.9 7.1 5.4 3.3 27.0 0.0 99.9
CostaRica 1.2 3.3 8.0 14.4 14.0 5.3 46.2 0.0 99.9
Mauritius 3.0 3.4 5.5 9.5 21.3 4.2 46.8 0.0 99.9
Iceland 4.6 5.2 7.1 7.7 4.7 4.0 33.3 0.0 99.9
Latvia 3.4 3.9 5.3 8.4 7.5 4.2 32.6 0.0 99.9
Guatemala 0.7 3.1 2.6 4.9 13.7 5.0 30.0 0.0 99.9
Uruguay 1.2 2.3 4.1 6.2 9.0 7.2 30.1 0.0 100.0
Paraguay 1.1 2.7 2.6 6.5 4.7 3.0 20.7 0.0 100.0
Malta 1.2 7.2 1.4 2.3 2.2 1.2 15.6 0.0 100.0
Nicaragua 2.0 3.3 3.3 2.3 3.7 3.5 18.1 0.0 100.0
ElSalvador 1.5 1.9 1.7 3.3 5.8 1.0 15.2 0.0 100.0
Luxembourg 0.2 0.1 0.2 0.4 2.0 3.1 5.9 0.0 100.0
Bolivia 0.9 1.5 2.5 3.5 3.0 1.6 12.9 0.0 100.0
Panama 0.5 0.7 1.2 1.8 2.8 3.3 10.2 0.0 100.0
Azerbaijan 1.0 0.1 0.3 3.3 5.1 0.5 10.4 0.0 100.0
Honduras 0.1 0.1 0.4 0.8 2.2 2.4 6.1 0.0 100.0
Source: GTIS, 2011
(*) Data for the first seven months



Table A 3; List of countries used for calculating NEER and REER

Argentina France Kuwait Singapore
Australia Germany Laos South Africa
Austria Greece Spain
Belgium Holland Malaysia Sweden
Brazil
Hong Kong
Chinese
New Zealand Switzerland
Cambodia Hungary Norway Thailand
Canada India Philippines The Philippines
Cezh Indonesia Poland The U.K
China Iraq Portugal The U.S
Chinese Taipei Ireland Republic of Korea Turkey
Denmark Italy Russia Ukraine
Finland Japan Saudi Arabia United Arab Emirates



Table A 4 Grange Causality Tests: Exchange Rate and Exports, by subsector

Exchange Rate do
not Granger cause
Exports
Exports do not
Granger cause
Exchange Rate
sector descript F-stat Prob. F-stat Prob.
1 Live animals other than animals of division 03 2.062 0.089 0.365 0.549
12 Meat, other than of bovine animals, and edible
offal, fresh, chilled or frozen
3.098 0.021 2.316 0.071
17 Meat and edible meat offal, prepared or
preserved n.e.s.
0.806 0.573 1.520 0.225
22 Milk and cream and milk products other than
butter or cheese
2.472 0.049 0.418 0.741
34 Fish, fresh (live or dead), chilled or frozen 1.564 0.193 2.363 0.132
35 Fish, dried, sltd r in brine; smkd fish (whethr r
nt cookd before or durng the s
6.504 0.000 5.486 0.001
36 Crustaceans molluscs,aqutc invrtbrts frsh
(lve/dead) ch sltd etc.; crustaceans i
1.301 0.289 2.043 0.144
37 Fish, crustaceans, molluscs and other aquatic
invertebrates, prepared or preserved
1.131 0.370 0.590 0.560
42 Rice 1.771 0.142 0.432 0.652
44 Maize (not including sweet corn) unmilled 1.374 0.258 4.257 0.046
45 Cereals, unmilled (other than wheat, rice,
barley and maize)
2.423 0.054 0.861 0.499
46 Meal and flour of wheat and flour of meslin 2.551 0.042 1.019 0.319
47 Cereal meals and flours, n.e.s. 11.204 0.000 4.388 0.005
48 Cereal preparations and preparations of flour
or starch of fruits or vegetables
1.169 0.350 0.280 0.600
54 Vegetables, fresh, chilled, frozen or simply
preserved; roots, tubers and other
3.160 0.016 0.825 0.369
56 Vegetables, roots and tubers, prepared or
preserved, n.e.s.
3.435 0.012 4.394 0.006
57 Fruit and nuts (not including oil nuts), fresh or
dried
2.099 0.085 0.152 0.859
58 Fruit preserved, and fruit preparations
(excluding fruit juices)
2.109 0.088 1.463 0.234
59 Fruit juices (incl. Grape must) and vegetable
juices, unfermented and not contai
2.483 0.052 2.030 0.101
61 Sugars, molasses, and honey 6.767 0.000 4.236 0.005
62 Sugar confectionery 4.398 0.004 1.570 0.199
71 Coffee and coffee substitutes 2.370 0.056 1.528 0.231
73 Chocolate and other food preparations
containing cocoa, n.e.s.
3.415 0.013 1.131 0.368
74 Tea and mate 1.842 0.126 0.375 0.544
75 Spices 2.731 0.034 1.086 0.381
81 Feeding stuff for animals (not including
unmilled cereals)
1.823 0.129 1.336 0.255

98 Edible products and preparations, n.e.s. 1.782 0.141 2.961 0.046
111 Nonalcoholic beverages, n.e.s. 1.289 0.293 4.006 0.052
112 Alcoholic beverages 2.332 0.058 2.935 0.095
122 Tobacco, manufactured (whether or not
containing tobacco substitutes)
4.375 0.004 3.313 0.018
223 Oil seeds and oleaginous fruits, whole or
broken, of a kind used for extracting
3.436 0.014 5.447 0.001
231 Natural rubber, balata, gutta-percha, guayule,
chicle and similar natural gums,
2.077 0.090 1.149 0.344
232 Synthetic rubber; reclaimed rubber; waste,
pairings and scrap of unhardened rubb
3.042 0.020 0.143 0.868
247 Wood in the rough or roughly squared 1.306 0.288 0.214 0.886
248 Wood, simply worked and railway sleepers of
wood
2.748 0.032 0.701 0.558
265 Vegetable textile fibers (other than cotton and
jute), raw or processed but not
2.679 0.037 2.876 0.040
266 Synthetic fibers suitable for spinning 6.602 0.000 9.272 0.000
269 Worn clothing and other worn textile articles;
rags
3.377 0.013 0.748 0.531
273 Stone, sand and gravel 2.798 0.028 1.827 0.184
274 Sulfur and unroasted iron pyrites 1.281 0.300 2.479 0.065
278 Crude minerals, n.e.s. 3.061 0.020 0.503 0.683
287 Ores and concentrates of base metals, n.e.s. 4.802 0.002 1.435 0.244
291 Crude animal materials, n.e.s. 2.742 0.035 1.903 0.127
292 Crude vegetable materials, n.e.s. 2.456 0.051 1.568 0.208
333 Petroleum oils and oils from bituminous
minerals, crude
1.246 0.313 0.148 0.703
334 Petroleum oils and oils from bituminous
minerals (other than crude), and product
5.742 0.001 1.924 0.118
335 Residual petroleum products, n.e.s. and related
materials
1.987 0.103 1.249 0.308
342 Liquefied propane and butane 1.058 0.410 0.079 0.925
344 Petroleum gases and other gaseous
hydrocarbons, n.e.s.
3.256 0.015 0.234 0.872
431 Animal or vegetable fats and oils processed;
waxes and inedible mixtures or prep
2.322 0.059 1.779 0.190
511 Hydrocarbons, n.e.s. and their halogenated,
sulfonated, nitrated or nitrosated d
1.714 0.154 0.716 0.495
513 Carboxylic acids and anhydrides, halides,
peroxides and peroxyacids; their halog
2.087 0.091 0.952 0.464
514 Nitrogen-function compounds 2.966 0.026 1.579 0.196
515 Organo-inorganic compounds, heterocyclic
compounds, nucleic acids and their salt
4.892 0.002 2.866 0.040
522 Inorganic chemical elements, oxides and
halogen salts
4.016 0.005 0.127 0.724
523 Metallic salts and peroxysalts of inorganic
acids
1.820 0.134 2.267 0.085
524 Inorganic chemicals, n.e.s.; organic and
inorganic compounds of precious metals
1.034 0.424 0.182 0.672

533 Pigments, paints, varnishes and related
materials
2.536 0.046 3.272 0.024
541 Medicinal and pharmaceutical products, other
than medicaments (of group 542)
2.261 0.069 3.196 0.027
542 Medicaments (including veterinary
medicaments)
2.571 0.044 9.359 0.000
551 Essential oils, perfume and flavor materials 1.729 0.150 5.408 0.025
553 Perfumery, cosmetics, or toilet preparations,
excluding soaps
2.495 0.048 2.990 0.034
554 Soap, cleansing and polishing preparations 2.024 0.098 5.088 0.003
571 Polymers of ethylene, in primary forms 3.967 0.007 2.348 0.063
573 Polymers of vinyl chloride or other
halogenated olefins, in primary forms
2.390 0.058 3.176 0.022
575 Plastics, n.e.s., in primary forms 1.725 0.151 0.000 0.985
579 Waste, parings and scrap, of plastics 1.617 0.180 0.967 0.390
581 Tubes, pipes and hoses of plastics 2.611 0.043 2.828 0.032
582 Plates, sheets, film, foil and strip of plastics 2.047 0.098 3.026 0.024
583 Monofilament with a cross-sectional
dimension exceeding 1 mm, rods, sticks and p
2.125 0.081 0.935 0.340
591 Insecticides, fungicides, herbicides, plant
growth regulators, etc., disinfectan
2.424 0.052 0.050 0.951
592 Starches, inulin and wheat gluten;
albuminoidal substances; glues
2.326 0.061 0.382 0.767
593 Explosives and pyrotechnic products 3.206 0.017 1.321 0.285
597 Prepared additives for mineral oils etc.; liquids
for hydraulic transmissions; a
5.822 0.001 1.222 0.329
598 Miscellaneous chemical products, n.e.s. 2.605 0.038 2.237 0.143
611 Leather 3.455 0.013 0.437 0.819
612 Manufactures of leather or composition
leather, n.e.s.; saddlery and harness
1.506 0.211 7.957 0.007
613 Furskins, tanned or dressed (including pieces
or cuttings), assembled or unassem
2.800 0.032 0.928 0.479
621 Materials of rubber, including pastes, plates,
sheets, rods, thread, tubes, etc.
1.238 0.316 6.269 0.017
625 Rubber tires, interchangeable tire treads, tire
flaps and inner tubes for wheels
2.296 0.065 5.815 0.001
629 Articles of rubber, n.e.s. 3.677 0.009 1.771 0.153
633 Cork manufactures 2.921 0.025 1.405 0.259
634 Veneers, plywood, particle board, and other
wood, worked, n.e.s.
0.883 0.519 0.083 0.775
635 Wood manufactures, n.e.s. 2.110 0.083 0.057 0.813
641 Paper and paperboard 1.433 0.236 0.034 0.855
642 Paper and paperboard, cut to size or shape, and
articles of paper or paperboard
1.803 0.138 7.991 0.000
651 Textile yarn 2.582 0.041 5.722 0.007
652 Cotton fabrics, woven (not including narrow or
special fabrics)
2.865 0.028 1.470 0.236
653 Woven fabrics of manmade textile materials
(not including narrow or special fabr
3.982 0.007 1.517 0.215

654 Woven fabrics of textile materials, other than
cotton or manmade fibers and narr
2.636 0.037 2.009 0.149
655 Knitted or crocheted fabrics (including tubular
knit fabrics, n.e.s., pile fabri
1.610 0.180 0.270 0.606
656 Tulles, lace, embroidery, ribbons, trimmings
and other small wares
6.455 0.000 1.437 0.242
657 Special yarns, special textile fabrics and
related products
3.105 0.020 1.022 0.412
658 Made-up articles, wholly or chiefly of textile
materials, n.e.s.
4.312 0.004 3.858 0.012
659 Floor coverings, etc. 3.896 0.007 2.741 0.040
661 Lime, cement, and fabricated construction
materials, except glass and clay mater
2.465 0.051 1.449 0.242
662 Clay construction materials and refractory
construction materials
5.724 0.001 1.101 0.391
663 Mineral manufactures, n.e.s. 3.926 0.007 1.806 0.145
664 Glass 3.285 0.014 0.418 0.661
665 Glassware 2.426 0.050 1.669 0.204
666 Pottery 4.727 0.002 3.645 0.016
667 Pearls, precious and semiprecious stones,
unworked or worked
1.838 0.129 0.832 0.486
674 Iron and nonalloy steel flat-rolled products,
clad, plated or coated
1.829 0.128 1.284 0.264
676 Iron and steel bars, rods, angles, shapes and
sections, including sheet piling
0.790 0.585 0.070 0.793
678 Iron and steel wire 3.319 0.013 0.232 0.633
679 Iron and steel tubes, pipes and hollow profiles,
fittings for tubes and pipes
1.705 0.160 2.836 0.042
681 Silver, platinum and other platinum group
metals
3.031 0.022 1.870 0.142
682 Copper 1.354 0.266 6.724 0.013
684 Aluminum 1.651 0.169 0.063 0.803
689 Miscellaneous nonferrous base metals
employed in metallurgy and cermets
1.550 0.200 6.352 0.002
691 Metal structures and parts, n.e.s., of iron, steel
or aluminum
10.998 0.000 1.722 0.164
692 Metal containers for storage or transport 3.663 0.010 3.388 0.017
693 Wire products (excluding insulated electrical
wiring) and fencing grills
2.638 0.039 1.969 0.125
694 Nails, screws, nuts, bolts, rivets and similar
articles, of iron, steel, copper
2.332 0.062 2.721 0.048
695 Tools for use in the hand or in machines 4.225 0.005 1.770 0.148
696 Cutlery 2.843 0.028 1.030 0.392
697 Household equipment of base metal, n.e.s. 1.056 0.411 4.817 0.034
699 Manufactures of base metal, n.e.s. 1.536 0.202 0.181 0.673
711 Steam or other vapor generating boilers, super-
heated water boilers and auxiliar
2.216 0.075 2.366 0.066
713 Internal combustion piston engines and parts
thereof, n.e.s.
6.307 0.000 4.081 0.006

714 Engines and motors, nonelectric (other than
steam turbines, internal combustion
2.378 0.060 5.899 0.001
716 Rotating electric plant and parts thereof, n.e.s. 2.333 0.058 0.467 0.499
721 Agricultural machinery (excluding tractors)
and parts thereof
1.879 0.118 0.276 0.602
722 Tractors (other than mechanical handling
equipment)
7.830 0.000 3.130 0.023
723 Civil engineering and contractors' plant and
equipment
1.487 0.222 1.362 0.271
724 Textile and leather machinery, and parts
thereof, n.e.s.
1.533 0.203 1.232 0.274
726 Printing and bookbinding machinery, and parts
thereof
2.471 0.047 0.051 0.822
727 Food-processing machines (excluding
domestic)
2.240 0.067 4.947 0.032
728 Machinery and equipment specialized for
particular industries, and parts thhereo
1.755 0.144 1.937 0.172
731 Machine tools working by removing metal or
other material
3.155 0.018 1.623 0.194
733 Machine tools for working metal, sintered
metal carbides or cermets, without rem
1.991 0.100 0.044 0.834
735 Parts and accessories suitable for use solely or
principally with metal working
3.127 0.020 2.580 0.049
737 Metalworking machinery (other than machine
tools) and parts thereof, n.e.s.
4.842 0.002 0.942 0.470
741 Heating and cooling equipment and parts
thereof, n.e.s.
3.706 0.007 8.651 0.005
742 Pumps for liquids, whether or not fitted with a
measuring device; liquid elevato
2.561 0.041 0.292 0.592
743 Pumps (not for liquids), air or gas compressors
and fans; ventilating hoods inco
2.022 0.095 0.895 0.350
744 Mechanical handling equipment, and parts
thereof, n.e.s.
4.973 0.002 2.079 0.108
745 Nonelectrical machinery, tools and mechanical
apparatus, and parts thereof, n.e.
3.802 0.007 2.995 0.045
746 Ball or roller bearings 2.590 0.039 0.017 0.896
747 Taps, cocks, valves and similar appliances for
pipes, boiler shells, tanks, etc.
6.493 0.000 1.742 0.154
748 Transmission shafts and cranks; bearing
housings and plain shaft bearings; gears
4.921 0.002 0.299 0.876
749 Nonelectric parts and accessories of
machinery, n.e.s.
3.878 0.007 0.897 0.497
751 Office machines 3.499 0.012 2.217 0.082
752 Automatic data processing machines and units
thereof; magnetic or optical reader
0.699 0.653 5.503 0.008
759 Parts and accessories suitable for use solely or
principally with office machine
1.889 0.121 2.389 0.073
761 Tv receivers (including video monitors &
projectors) wheth r nt incorp radiobroa
2.669 0.038 4.652 0.003

763 Sound recorders or reproducers; television
image and sound recorders or reproduc
6.001 0.001 9.072 0.000
764 Telecommunications equipment, n.e.s.; and
parts, n.e.s., and accessories of appa
1.789 0.138 2.193 0.126
771 Electric power machinery (other than rotating
electric plant of power generating
2.169 0.077 0.551 0.581
772 Electrical apparatus for switching or protecting
electrical circuits or for maki
2.744 0.033 2.031 0.129
773 Equipment for distributing electricity, n.e.s. 1.105 0.387 2.335 0.069
774 Electro-diagnostic apparatus for medical,
surgical, dental or veterinary science
1.813 0.139 10.222 0.000
775 Household type electrical and nonelectrical
equipment, n.e.s.
1.037 0.422 0.118 0.889
776 Thermionic, cold cathode or photocathode
valves and tubes; diodes, transistors a
2.513 0.047 1.228 0.320
778 Electrical machinery and apparatus, n.e.s. 0.934 0.486 0.503 0.482
781 Motor cars and other motor vehicles
principally designed for the transport of pe
6.224 0.000 3.133 0.029
784 Parts and accessories for tractors, motor cars
and other motor vehicles, trucks,
2.640 0.038 0.538 0.659
785 Motorcycles (including mopeds) and cycles,
motorized and not motorized; invalid
4.431 0.004 0.772 0.600
786 Trailers and semi-trailers; other vehicles, not
mechanically propelled; speciall
1.870 0.124 2.260 0.086
791 Railway vehicles (including hovertrains) and
associated equipment
2.035 0.093 0.657 0.423
792 Aircraft and associated equipment; spacecraft
(including satellites) and spacecr
2.578 0.043 2.593 0.056
793 Ships, boats (including hovercraft) and floating
structures
4.825 0.002 3.006 0.025
811 Prefabricated buildings 1.756 0.148 4.152 0.009
812 Sanitary, plumbing and heating fixtures and
fittings, n.e.s.
4.217 0.005 2.009 0.104
813 Lighting fixtures and fittings, n.e.s. 1.109 0.381 0.171 0.681
821 Furniture and parts thereof; bedding,
mattresses, mattress supports, cushions an
5.385 0.001 2.470 0.066
831 Trunks, suitcases, vanity cases, binocular and
camera cases, handbags, wallets,
1.542 0.203 1.168 0.337
841 Men's or boys' coats, jackets, suits, trousers,
shirts, underwear etc. Of woven
5.166 0.002 4.823 0.002
842 Women's or girls' coats, capes, jackets, suits,
trousers, dresses, skirts, under
2.036 0.093 3.037 0.089
843 Men's or boys' coats, capes, jackets, suits,
blazers, trousers, shirts, etc. (ex
2.022 0.095 0.294 0.591
844 Women's or girls' coats, capes, jackets, suits,
trousers, dresses, underwear, et
2.464 0.053 6.819 0.000
845 Articles of apparel, of textile fabrics, whether
or not knitted or crocheted, n.
2.887 0.028 8.828 0.000
846 Clothing accessories, of textile fabrics, 2.521 0.044 0.029 0.867

whether or not knitted or crocheted (o
848 Articles of apparel and clothing accessories of
other than textile fabrics; head
3.674 0.009 2.280 0.084
851 Footwear 2.885 0.027 3.736 0.014
871 Optical instruments and apparatus, n.e.s. 1.355 0.271 2.017 0.108
872 Instruments and appliances, n.e.s., for medical,
surgical, dental or veterinary
2.780 0.034 7.266 0.000
874 Measuring, checking, analysing and
controlling instruments and apparatus, n.e.s.
1.938 0.108 4.549 0.039
881 Photographic apparatus and equipment, n.e.s. 1.501 0.216 4.681 0.008
882 Photographic and cinematographic supplies 4.026 0.005 1.975 0.137
884 Optical goods, n.e.s. 2.176 0.076 1.161 0.325
885 Watches and clocks 0.985 0.453 1.091 0.303
891 Arms and ammunition 1.027 0.428 0.576 0.452
892 Printed matter 1.543 0.200 1.390 0.246
893 Articles, n.e.s. of plastics 3.342 0.014 8.163 0.000
894 Baby carriages, toys, games and sporting
goods
3.802 0.008 4.293 0.004
895 Office and stationery supplies, n.e.s. 1.579 0.192 1.825 0.162
896 Works of art, collectors' pieces and antiques 3.207 0.017 1.286 0.296
897 Jewelry, goldsmiths' and silversmiths' wares,
and other articles of precious or
2.092 0.085 0.542 0.466
898 Musical instruments, parts and accessories
thereof; records, tapes and other sou
2.990 0.023 4.791 0.004
899 Miscellaneous manufactured articles, n.e.s. 5.309 0.001 6.340 0.001
931 Special transactions and commodities not
classified according to kind
1.825 0.132 2.451 0.081
950 Coin, including gold coin; proof and
presentation sets and current coin
2.745 0.033 1.509 0.224
971 Gold, nonmonetary (excluding gold ores and
concentrates)
4.321 0.004 5.877 0.001
984 Estimate of import items valued under $251
and of other low valued items nonexem
5.605 0.001 5.559 0.001







Table A 5. Co-intergation coeffients by sub-sectors


Sector Sector description exportt/e
x rate
elasticity
price/e
xrate
elastici
ty
T-ration
for
exportt/e
x rate
elasticit
y
T-ration
for
price/exr
ate
elasticity
1 Live animals other than animals of
division 03
1.081 -2.306 0.460 -3.383
12 Meat, other than of bovine animals, and
edible offal, fresh, chilled or frozen (
13.337 -2.925 6.835 -8.572
17 Meat and edible meat offal, prepared or
preserved n.e.s.
86.102 5.470 1.922 1.267
22 Milk and cream and milk products other
than butter or cheese
29.832 -6.368 2.886 -22.040
34 Fish, fresh (live or dead), chilled or
frozen
-4.067 -2.796 -9.263 -5.745
35 Fish, dried, sltd r in brine; smkd fish
(whethr r ntcookd before or durng the s
-1.598 -1.861 -0.238 -2.324
36 Crustaceans molluscs,aqutcinvrtbrtsfrsh
(lve/dead) chsltd etc.; crustaceans i
0.980 -2.882 0.475 -5.126
37 Fish, crustaceans, molluscs and other
aquatic invertebrates, prepared or preserv
-0.425 -1.842 -0.441 -2.592
42 Rice -19.679 -2.963 -4.747 -8.037
44 Maize (not including sweet corn)
unmilled
-8.176 -1.969 -9.869 -4.281
45 Cereals, unmilled (other than wheat, rice,
barley and maize)
-2.132 -5.685 -0.178 -4.241
46 Meal and flour of wheat and flour of
meslin
-13.443 -6.569 -2.095 -7.109
47 Cereal meals and flours, n.e.s. 6.810 -0.446 0.398 -0.288
48 Cereal preparations and preparations of
flour or starch of fruits or vegetables
-7.423 -2.572 -4.200 -3.456
54 Vegetables, fresh, chilled, frozen or
simply preserved; roots, tubers and other
-1.796 -3.009 -0.996 -7.043
56 Vegetables, roots and tubers, prepared or
preserved, n.e.s.
0.723 -1.207 0.138 -1.504
57 Fruit and nuts (not including oil nuts),
fresh or dried
-5.803 -2.800 -5.088 -7.105
58 Fruit preserved, and fruit preparations
(excluding fruit juices)
-0.491 -2.030 -0.092 -3.933
59 Fruit juices (incl. Grape must) and
vegetable juices, unfermented and not
contai
-5.104 -1.410 -1.763 -1.636
61 Sugars, molasses, and honey 2.651 -2.295 1.214 -4.163
62 Sugar confectionery -8.642 -2.726 -6.034 -6.118
71 Coffee and coffee substitutes -0.442 -1.094 -0.106 -1.083

73 Chocolate and other food preparations
containing cocoa, n.e.s.
-27.599 -2.069 -3.409 -3.065
74 Tea and mate -5.927 -2.271 -7.947 -3.271
75 Spices -8.406 -3.394 -5.773 -6.830
81 Feeding stuff for animals (not including
unmilled cereals)
-10.004 -4.930 -23.934 -39.217
98 Edible products and preparations, n.e.s. -11.548 -3.351 -9.176 -10.966
111 Nonalcoholic beverages, n.e.s. 2.098 -2.966 1.292 -3.494
112 Alcoholic beverages -1.211 -3.098 -0.900 -4.563
122 Tobacco, manufactured (whether or not
containing tobacco substitutes)
134.821 -8.225 2.844 -11.449
223 Oil seeds and oleaginous fruits, whole or
broken, of a kind used for extracting
-3.359 -2.837 -1.670 -5.400
231 Natural rubber, balata, gutta-percha,
guayule, chicle and similar natural gums,
1.353 -1.441 0.347 -1.976
232 Synthetic rubber; reclaimed rubber;
waste, pairings and scrap of unhardened
rubb
-478.580 -
38.014
-3.478 -3.853
247 Wood in the rough or roughly squared 10.545 -3.491 0.720 -14.067
248 Wood, simply worked and railway
sleepers of wood
25.723 0.231 2.591 0.311
265 Vegetable textile fibers (other than cotton
and jute), raw or processed but not
-58.871 -4.911 -4.858 -7.753
266 Synthetic fibers suitable for spinning -66.964 -
15.010
-4.050 -7.599
269 Worn clothing and other worn textile
articles; rags
3.934 -3.084 0.314 -3.346
273 Stone, sand and gravel -19.637 -8.273 -1.712 -11.591
274 Sulfur and unroasted iron pyrites 27.801 -2.851 2.664 -8.410
278 Crude minerals, n.e.s. 5.550 -1.350 0.668 -1.948
287 Ores and concentrates of base metals,
n.e.s.
21.175 -7.363 0.997 -3.093
291 Crude animal materials, n.e.s. -3.350 -2.948 -1.941 -6.122
292 Crude vegetable materials, n.e.s. -10.104 -3.194 -6.362 -10.058
333 Petroleum oils and oils from bituminous
minerals, crude
-20.029 -3.407 -1.876 -4.061
334 Petroleum oils and oils from bituminous
minerals (other than crude), and product
-3.104 -1.989 -2.254 -3.734
335 Residual petroleum products, n.e.s. and
related materials
8.627 -2.603 1.644 -4.405
342 Liquefied propane and butane 0.092 -2.839 0.035 -7.268
344 Petroleum gases and other gaseous
hydrocarbons, n.e.s.
3.241 -2.822 0.747 -5.292
431 Animal or vegetable fats and oils
processed; waxes and inedible mixtures
or prep
-145.494 41.434 -4.894 4.153
511 Hydrocarbons, n.e.s. and their
halogenated, sulfonated, nitrated or
nitrosated d
-76.139 -6.513 -9.722 -21.193

513 Carboxylic acids and anhydrides, halides,
peroxides and peroxyacids; their halog
51.805 -
15.452
1.818 -2.223
514 Nitrogen-function compounds 29.341 -1.575 4.198 -1.375
515 Organo-inorganic compounds,
heterocyclic compounds, nucleic acids
and their salt
-9.639 -1.214 -0.644 -2.766
522 Inorganic chemical elements, oxides and
halogen salts
45.030 5.419 0.575 0.803
523 Metallic salts and peroxysalts of
inorganic acids
-195.247 -
15.527
-5.727 -10.163
524 Inorganic chemicals, n.e.s.; organic and
inorganic compounds of precious metals
27.901 0.147 2.298 0.125
533 Pigments, paints, varnishes and related
materials
-8.742 -1.030 -1.465 -2.402
541 Medicinal and pharmaceutical products,
other than medicaments (of group 542)
-8.805 -2.242 -2.662 -6.697
542 Medicaments (including veterinary
medicaments)
2.094 -3.090 0.224 -3.246
551 Essential oils, perfume and flavor
materials
68.315 6.627 4.153 2.902
553 Perfumery, cosmetics, or toilet
preparations, excluding soaps
-5.666 -3.514 -1.236 -6.099
554 Soap, cleansing and polishing
preparations
10.893 3.587 1.524 1.467
571 Polymers of ethylene, in primary forms -38.513 -0.981 -5.641 -3.584
573 Polymers of vinyl chloride or other
halogenated olefins, in primary forms
-6.275 -1.402 -3.431 -6.057
575 Plastics, n.e.s., in primary forms 116.598 3.939 2.346 1.518
579 Waste, parings and scrap, of plastics -7.819 -1.867 -0.425 -1.146
581 Tubes, pipes and hoses of plastics 657.790 106.26
0
2.692 2.712
582 Plates, sheets, film, foil and strip of
plastics
-68.896 -5.649 -5.862 -7.056
583 Monofilament with a cross-sectional
dimension exceeding 1 mm, rods, sticks
and p
21.685 -3.666 0.722 -6.013
591 Insecticides, fungicides, herbicides, plant
growth regulators, etc., disinfectan
-19.107 -3.492 -1.040 -3.467
592 Starches, inulin and wheat gluten;
albuminoidal substances; glues
-2.363 -1.121 -0.118 -0.660
593 Explosives and pyrotechnic products -39.017 4.208 -2.468 2.517
597 Prepared additives for mineral oils etc.;
liquids for hydraulic transmissions; a
-99.558 -8.716 -2.632 -17.779
598 Miscellaneous chemical products, n.e.s. 133.224 5.335 1.012 0.791
611 Leather -10.480 -2.458 -2.425 -4.604
612 Manufactures of leather or composition
leather, n.e.s.; saddlery and harness
-1.397 -3.003 -1.223 -3.941
613 Furskins, tanned or dressed (including
pieces or cuttings), assembled or
-31.127 -2.745 -10.129 -7.704

unassem
621 Materials of rubber, including pastes,
plates, sheets, rods, thread, tubes, etc.
-48.629 -5.567 -4.057 -4.751
625 Rubber tires, interchangeable tire treads,
tire flaps and inner tubes for wheels
-24.405 -2.319 -13.626 -3.520
629 Articles of rubber, n.e.s. -7.290 1.117 -4.112 0.908
633 Cork manufactures 0.557 -1.632 0.269 -2.626
634 Veneers, plywood, particle board, and
other wood, worked, n.e.s.
1.526 -1.038 0.024 -0.325
635 Wood manufactures, n.e.s. -3.842 -1.356 -1.969 -2.310
641 Paper and paperboard -38.346 -3.635 -4.447 -9.056
642 Paper and paperboard, cut to size or
shape, and articles of paper or
paperboard
-11.115 -2.388 -1.109 -4.275
651 Textile yarn -33.522 -7.090 -5.023 -6.078
652 Cotton fabrics, woven (not including
narrow or special fabrics)
-41.191 -0.413 -4.248 -0.350
653 Woven fabrics of manmade textile
materials (not including narrow or
special fabr
-138.767 17.957 -3.040 3.040
654 Woven fabrics of textile materials, other
than cotton or manmade fibers and narr
64.859 18.689 4.051 3.669
655 Knitted or crocheted fabrics (including
tubular knit fabrics, n.e.s., pile fabri
-0.027 -1.185 -0.005 -1.277
656 Tulles, lace, embroidery, ribbons,
trimmings and other small wares
76.969 4.566 1.833 1.248
657 Special yarns, special textile fabrics and
related products
5.985 1.552 0.504 0.830
658 Made-up articles, wholly or chiefly of
textile materials, n.e.s.
-8.840 -1.325 -3.667 -2.142
659 Floor coverings, etc. -8.358 -5.057 -1.738 -5.573
661 Lime, cement, and fabricated
construction materials, except glass and
clay mater
-10.997 -1.986 -7.316 -2.764
662 Clay construction materials and
refractory construction materials
-45.700 -8.176 -2.969 -3.907
663 Mineral manufactures, n.e.s. -8.799 -3.183 -16.580 -7.728
664 Glass -14.019 -1.359 -3.862 -1.058
665 Glassware 9.345 -2.776 2.647 -4.357
666 Pottery -2.700 -2.005 -2.188 -5.276
667 Pearls, precious and semiprecious stones,
unworked or worked
56.714 3.036 1.019 1.000
674 Iron and nonalloy steel flat-rolled
products, clad, plated or coated
-13.927 -2.456 -6.009 -8.653
676 Iron and steel bars, rods, angles, shapes
and sections, including sheet piling
-73.471 2.054 -3.385 2.499
678 Iron and steel wire 38.186 5.444 0.830 0.847
679 Iron and steel tubes, pipes and hollow
profiles, fittings for tubes and pipes
-16.083 -3.119 -5.147 -11.023

681 Silver, platinum and other platinum
group metals
1.239 -6.339 0.195 -3.725
682 Copper -2.813 -2.942 -0.961 -2.654
684 Aluminum -29.338 0.017 -3.269 0.013
689 Miscellaneous nonferrous base metals
employed in metallurgy and cermets
326.361 81.506 2.314 2.293
691 Metal structures and parts, n.e.s., of iron,
steel or aluminum
-33.684 -2.947 -2.495 -5.057
692 Metal containers for storage or transport -14.462 -2.495 -3.529 -2.104
693 Wire products (excluding insulated
electrical wiring) and fencing grills
-867.852 -
20.417
-1.430 -1.592
694 Nails, screws, nuts, bolts, rivets and
similar articles, of iron, steel, copper
-24.191 -4.295 -9.787 -13.100
695 Tools for use in the hand or in machines -6.608 -2.898 -2.312 -4.068
696 Cutlery -16.280 0.420 -2.230 0.355
697 Household equipment of base metal,
n.e.s.
-10.038 -2.577 -6.792 -12.384
699 Manufactures of base metal, n.e.s. -416.348 -
55.522
-3.400 -3.406
711 Steam or other vapor generating boilers,
super-heated water boilers and auxiliar
3364.437 -8.865 2.748 -5.133
713 Internal combustion piston engines and
parts thereof, n.e.s.
-18.411 -0.133 -4.236 -0.379
714 Engines and motors, nonelectric (other
than steam turbines, internal combustion
2.792 -3.120 0.412 -15.202
716 Rotating electric plant and parts thereof,
n.e.s.
-8.521 -1.272 -3.145 -1.324
721 Agricultural machinery (excluding
tractors) and parts thereof
2.413 -2.880 1.375 -6.163
722 Tractors (other than mechanical handling
equipment)
54.234 -
10.744
4.483 -5.584
723 Civil engineering and contractors' plant
and equipment
-1.995 -1.900 -0.100 -2.372
724 Textile and leather machinery, and parts
thereof, n.e.s.
-29.384 -1.654 -6.378 -2.978
726 Printing and bookbinding machinery, and
parts thereof
1.983 -1.806 0.274 -1.906
727 Food-processing machines (excluding
domestic)
-21.609 -2.434 -9.767 -3.148
728 Machinery and equipment specialized for
particular industries, and parts thhereo
72.421 2.890 2.410 1.768
731 Machine tools working by removing
metal or other material
-53.273 -9.360 -0.749 -10.736
733 Machine tools for working metal,
sintered metal carbides or cermets,
without rem
1.678 -2.348 1.037 -7.783
735 Parts and accessories suitable for use
solely or principally with metal working
-5.335 -2.014 -0.522 -4.187
737 Metalworking machinery (other than 84.286 2.735 3.456 1.404

machine tools) and parts thereof, n.e.s.
741 Heating and cooling equipment and parts
thereof, n.e.s.
-6.367 -1.555 -0.263 -1.092
742 Pumps for liquids, whether or not fitted
with a measuring device; liquid elevato
-78.545 -7.563 -6.583 -8.847
743 Pumps (not for liquids), air or gas
compressors and fans; ventilating hoods
inco
-11.263 -2.468 -3.894 -4.510
744 Mechanical handling equipment, and
parts thereof, n.e.s.
-25.380 -2.204 -3.114 -2.048
745 Nonelectrical machinery, tools and
mechanical apparatus, and parts thereof,
n.e.
16.017 2.857 0.942 1.079
746 Ball or roller bearings -1.568 -2.602 -0.341 -5.041
747 Taps, cocks, valves and similar
appliances for pipes, boiler shells, tanks,
etc.
-12.971 -2.723 -2.979 -6.290
748 Transmission shafts and cranks; bearing
housings and plain shaft bearings; gears
64.682 0.483 2.960 0.483
749 Nonelectric parts and accessories of
machinery, n.e.s.
-3.491 -1.644 -0.390 -1.040
751 Office machines -15.018 -1.192 -0.971 -2.564
752 Automatic data processing machines and
units thereof; magnetic or optical reader
-7.413 -1.055 -0.881 -0.793
759 Parts and accessories suitable for use
solely or principally with office machine
-13.973 -1.868 -3.000 -3.205
761 Tv receivers (including video monitors &
projectors) wheth r ntincorpradiobroa
-
1959.602
-
450.66
9
-7.774 -7.855
763 Sound recorders or reproducers;
television image and sound recorders or
reproduc
-40.797 -2.710 -1.219 -4.549
764 Telecommunications equipment, n.e.s.;
and parts, n.e.s., and accessories of appa
0.103 0.106 0.008 0.082
771 Electric power machinery (other than
rotating electric plant of power
generating
-9.268 -2.400 -2.498 -3.483
772 Electrical apparatus for switching or
protecting electrical circuits or for maki
-35.893 -3.621 -2.832 -6.486
773 Equipment for distributing electricity,
n.e.s.
237.766 12.596 2.503 2.401
774 Electro-diagnostic apparatus for medical,
surgical, dental or veterinary science
21.816 -7.563 0.709 -2.865
775 Household type electrical and
nonelectrical equipment, n.e.s.
326.717 16.210 1.843 1.719
776 Thermionic, cold cathode or
photocathode valves and tubes; diodes,
transistors a
-1.016 -1.463 -0.726 -1.792
778 Electrical machinery and apparatus, n.e.s. 62.343 9.175 3.614 2.940

781 Motor cars and other motor vehicles
principally designed for the transport of
pe
-
2072.504
-
337.90
0
-3.270 -3.293
784 Parts and accessories for tractors, motor
cars and other motor vehicles, trucks,
19.947 3.555 2.075 1.974
785 Motorcycles (including mopeds) and
cycles, motorized and not motorized;
invalid
-6.839 -0.865 -0.510 -0.512
786 Trailers and semi-trailers; other vehicles,
not mechanically propelled; speciall
-0.549 -1.319 -0.039 -1.305
791 Railway vehicles (including hovertrains)
and associated equipment
-17.313 -3.767 -3.015 -9.819
792 Aircraft and associated equipment;
spacecraft (including satellites) and
spacecr
11.890 -1.019 0.652 -0.749
793 Ships, boats (including hovercraft) and
floating structures
-23.590 -1.841 -3.547 -3.413
811 Prefabricated buildings 34.451 2.600 2.191 1.386
812 Sanitary, plumbing and heating fixtures
and fittings, n.e.s.
28.356 -0.338 2.709 -0.639
813 Lighting fixtures and fittings, n.e.s. -6.553 -2.642 -1.922 -3.681
821 Furniture and parts thereof; bedding,
mattresses, mattress supports, cushions
an
-1.162 -0.810 -0.326 -1.500
831 Trunks, suitcases, vanity cases, binocular
and camera cases, handbags, wallets,
-12.645 -1.292 -6.105 -2.171
841 Men's or boys' coats, jackets, suits,
trousers, shirts, underwear etc. Of woven
-6.645 -0.271 -3.574 -0.386
842 Women's or girls' coats, capes, jackets,
suits, trousers, dresses, skirts, under
12.558 -0.258 1.424 -0.240
843 Men's or boys' coats, capes, jackets, suits,
blazers, trousers, shirts, etc. (ex
-4.949 -1.248 -1.549 -1.680
844 Women's or girls' coats, capes, jackets,
suits, trousers, dresses, underwear, et
-5.993 -1.355 -1.585 -1.697
845 Articles of apparel, of textile fabrics,
whether or not knitted or crocheted, n.
-8.330 -1.517 -2.525 -1.848
846 Clothing accessories, of textile fabrics,
whether or not knitted or crocheted (o
-10.279 -3.093 -3.789 -7.481
848 Articles of apparel and clothing
accessories of other than textile fabrics;
head
-12.658 -0.844 -4.239 -1.181
851 Footwear 1.918 -0.869 0.511 -1.297
871 Optical instruments and apparatus, n.e.s. 529.430 35.179 2.378 2.283
872 Instruments and appliances, n.e.s., for
medical, surgical, dental or veterinary
13.791 0.513 1.079 0.360
874 Measuring, checking, analysing and
controlling instruments and apparatus,
n.e.s.
9.571 -0.445 1.126 -0.308
881 Photographic apparatus and equipment, 8.090 -1.252 0.658 -1.266

n.e.s.
882 Photographic and cinematographic
supplies
71.718 -
13.222
2.451 -5.378
884 Optical goods, n.e.s. 20.400 -0.051 2.439 -0.061
885 Watches and clocks -6.316 -3.046 -1.212 -7.641
891 Arms and ammunition -1.422 -3.815 -0.417 -5.369
892 Printed matter -5.176 -2.880 -1.452 -6.189
893 Articles, n.e.s. of plastics 76.275 6.859 3.103 2.647
894 Baby carriages, toys, games and sporting
goods
-4.364 -0.171 -0.792 -0.180
895 Office and stationery supplies, n.e.s. 17.594 0.679 1.489 0.495
896 Works of art, collectors' pieces and
antiques
-10.797 -3.136 -2.480 -7.189
897 Jewelry, goldsmiths' and silversmiths'
wares, and other articles of precious or
-11.565 -1.119 -2.553 -2.467
898 Musical instruments, parts and
accessories thereof; records, tapes and
other sou
1.985 -1.072 0.328 -0.988
899 Miscellaneous manufactured articles,
n.e.s.
-8.402 -1.875 -1.170 -3.117
931 Special transactions and commodities not
classified according to kind
-8.787 -3.180 -3.859 -9.350
950 Coin, including gold coin; proof and
presentation sets and current coin
7.810 -1.370 9.818 -4.439
971 Gold, nonmonetary (excluding gold ores
and concentrates)
39.308 -
13.527
6.787 -9.946
984 Estimate of import items valued under
$251 and of other low valued items
nonexem
40.000 8.027 4.273 3.639















Table A 6: Short-term responses of export to exchange rate:
Impulse Response Functions

sector descript Period_1 Period_2 Period_3 Period_4
1 Live animals other than animals of division
03
-0.031 -0.235 -0.518 -0.751
12 Meat, other than of bovine animals, and
edible offal, fresh, chilled or frozen (
-0.006 -0.026 0.017 0.170
17 Meat and edible meat offal, prepared or
preserved n.e.s.
-0.344 -0.035 0.652 1.117
22 Milk and cream and milk products other than
butter or cheese
0.043 0.253 0.480 0.713
34 Fish, fresh (live or dead), chilled or frozen 0.010 0.141 0.127 0.000
35 Fish, dried, sltd r in brine; smkd fish (whethr r
ntcookd before or durng the s
-0.101 -0.308 -0.622 -1.088
36 Crustaceans molluscs,aqutcinvrtbrtsfrsh
(lve/dead) chsltd etc.; crustaceans i
0.030 0.225 0.411 0.650
37 Fish, crustaceans, molluscs and other aquatic
invertebrates, prepared or preserv
0.029 0.256 0.496 0.827
42 Rice -0.133 -0.435 -0.977 -1.601
44 Maize (not including sweet corn) unmilled -0.300 -0.822 -1.577 -2.360
45 Cereals, unmilled (other than wheat, rice,
barley and maize)
0.045 -0.323 -0.584 -0.581
46 Meal and flour of wheat and flour of meslin -0.064 -0.135 -0.142 -0.286
47 Cereal meals and flours, n.e.s. 0.012 -0.078 -0.377 -0.793
48 Cereal preparations and preparations of flour
or starch of fruits or vegetables
0.047 0.181 0.183 0.048
54 Vegetables, fresh, chilled, frozen or simply
preserved; roots, tubers and other
-0.034 -0.061 -0.044 -0.027
56 Vegetables, roots and tubers, prepared or
preserved, n.e.s.
0.152 0.359 0.433 0.482
57 Fruit and nuts (not including oil nuts), fresh or
dried
0.061 0.363 0.751 1.256
58 Fruit preserved, and fruit preparations
(excluding fruit juices)
-0.036 -0.071 0.075 0.305
59 Fruit juices (incl. Grape must) and vegetable
juices, unfermented and not contai
0.090 0.361 0.735 1.217
61 Sugars, molasses, and honey 0.054 0.254 0.430 0.666
62 Sugar confectionery 0.095 0.262 0.631 0.988
71 Coffee and coffee substitutes 0.149 0.549 0.909 1.223
73 Chocolate and other food preparations
containing cocoa, n.e.s.
-0.140 -0.159 -0.160 -0.187
74 Tea and mate -0.085 -0.139 -0.144 -0.081
75 Spices -0.187 -0.571 -0.941 -1.298
81 Feeding stuff for animals (not including
unmilled cereals)
-0.082 -0.758 -1.653 -2.676
98 Edible products and preparations, n.e.s. -0.031 0.055 0.096 0.073
111 Nonalcoholic beverages, n.e.s. -0.050 -0.101 -0.036 0.023

112 Alcoholic beverages 0.039 0.136 0.319 0.586
122 Tobacco, manufactured (whether or not
containing tobacco substitutes)
0.064 -0.190 -0.495 -0.442
223 Oil seeds and oleaginous fruits, whole or
broken, of a kind used for extracting
-0.042 0.019 0.158 0.314
231 Natural rubber, balata, gutta-percha, guayule,
chicle and similar natural gums,
0.021 0.187 0.284 0.435
232 Synthetic rubber; reclaimed rubber; waste,
pairings and scrap of unhardened rubb
-0.214 -0.499 -0.848 -1.211
247 Wood in the rough or roughly squared -0.247 -0.587 -1.161 -2.078
248 Wood, simply worked and railway sleepers of
wood
0.046 0.228 0.602 1.034
265 Vegetable textile fibers (other than cotton and
jute), raw or processed but not
0.191 0.339 0.307 0.104
266 Synthetic fibers suitable for spinning -0.196 -0.401 -0.731 -0.946
269 Worn clothing and other worn textile articles;
rags
-0.002 0.002 -0.117 -0.290
273 Stone, sand and gravel -0.002 0.134 0.243 0.250
274 Sulfur and unroasted iron pyrites 0.317 -0.171 -0.239 -1.678
278 Crude minerals, n.e.s. 0.389 0.682 0.941 1.503
287 Ores and concentrates of base metals, n.e.s. -0.428 -0.715 -0.954 -1.134
291 Crude animal materials, n.e.s. -0.045 -0.007 0.121 0.173
292 Crude vegetable materials, n.e.s. -0.007 -0.140 -0.146 -0.180
333 Petroleum oils and oils from bituminous
minerals, crude
0.077 0.130 0.217 0.304
334 Petroleum oils and oils from bituminous
minerals (other than crude), and product
-0.082 -0.191 -0.378 -0.573
335 Residual petroleum products, n.e.s. and
related materials
-0.089 -0.186 -0.328 -0.604
342 Liquefied propane and butane -0.011 -0.023 -0.106 -0.276
344 Petroleum gases and other gaseous
hydrocarbons, n.e.s.
-0.084 -0.118 -0.220 -0.376
431 Animal or vegetable fats and oils processed;
waxes and inedible mixtures or prep
-0.327 -0.945 -1.911 -2.827
511 Hydrocarbons, n.e.s. and their halogenated,
sulfonated, nitrated or nitrosated d
0.241 0.631 0.825 1.183
513 Carboxylic acids and anhydrides, halides,
peroxides and peroxyacids; their halog
0.213 0.525 1.005 1.661
514 Nitrogen-function compounds 0.021 0.129 0.376 0.704
515 Organo-inorganic compounds, heterocyclic
compounds, nucleic acids and their salt
-0.174 -0.355 -0.533 -0.871
522 Inorganic chemical elements, oxides and
halogen salts
-0.044 -0.217 -0.690 -1.334
523 Metallic salts and peroxysalts of inorganic
acids
-0.379 -0.882 -1.150 -1.244
524 Inorganic chemicals, n.e.s.; organic and
inorganic compounds of precious metals
0.330 0.743 1.313 2.057
533 Pigments, paints, varnishes and related
materials
-0.179 -0.271 -0.424 -0.799

541 Medicinal and pharmaceutical products, other
than medicaments (of group 542)
-0.115 -0.096 0.046 0.346
542 Medicaments (including veterinary
medicaments)
-0.034 0.084 0.370 1.018
551 Essential oils, perfume and flavor materials -0.034 -0.188 -0.353 -0.533
553 Perfumery, cosmetics, or toilet preparations,
excluding soaps
0.046 0.163 0.186 0.209
554 Soap, cleansing and polishing preparations -0.047 0.044 0.205 0.597
571 Polymers of ethylene, in primary forms 0.210 0.608 1.160 1.827
573 Polymers of vinyl chloride or other
halogenated olefins, in primary forms
0.001 -0.024 -0.053 -0.089
575 Plastics, n.e.s., in primary forms 0.085 0.373 0.407 0.610
579 Waste, parings and scrap, of plastics -0.114 -0.402 -1.028 -1.846
581 Tubes, pipes and hoses of plastics 0.015 -0.023 0.015 0.138
582 Plates, sheets, film, foil and strip of plastics 0.001 0.069 0.090 0.209
583 Monofilament with a cross-sectional
dimension exceeding 1 mm, rods, sticks and p
0.276 -0.006 -0.532 -1.635
591 Insecticides, fungicides, herbicides, plant
growth regulators, etc., disinfectan
0.056 0.304 0.389 0.370
592 Starches, inulin and wheat gluten;
albuminoidal substances; glues
-0.316 -0.769 -1.362 -2.094
593 Explosives and pyrotechnic products -0.193 -0.307 -0.057 0.644
597 Prepared additives for mineral oils etc.;
liquids for hydraulic transmissions; a
-0.482 -0.754 -0.883 -0.954
598 Miscellaneous chemical products, n.e.s. 0.211 0.543 0.917 1.445
611 Leather 0.031 0.071 0.124 0.094
612 Manufactures of leather or composition
leather, n.e.s.; saddlery and harness
0.099 0.280 0.467 0.721
613 Furskins, tanned or dressed (including pieces
or cuttings), assembled or unassem
0.319 1.186 3.001 5.497
621 Materials of rubber, including pastes, plates,
sheets, rods, thread, tubes, etc.
0.252 0.734 1.385 2.192
625 Rubber tires, interchangeable tire treads, tire
flaps and inner tubes for wheels
-0.094 -0.161 -0.361 -0.649
629 Articles of rubber, n.e.s. 0.046 0.207 0.230 0.246
633 Cork manufactures 0.109 0.663 1.201 1.869
634 Veneers, plywood, particle board, and other
wood, worked, n.e.s.
-0.291 -0.647 -1.061 -1.568
635 Wood manufactures, n.e.s. 0.175 0.370 0.608 0.976
641 Paper and paperboard 0.008 -0.096 -0.404 -0.808
642 Paper and paperboard, cut to size or shape,
and articles of paper or paperboard
-0.152 -0.434 -0.651 -0.814
651 Textile yarn 0.043 0.053 -0.045 -0.116
652 Cotton fabrics, woven (not including narrow
or special fabrics)
-0.104 0.005 0.028 0.002
653 Woven fabrics of manmade textile materials
(not including narrow or special fabr
-0.081 -0.150 -0.152 -0.167
654 Woven fabrics of textile materials, other than
cotton or manmade fibers and narr
-0.090 -0.177 -0.227 -0.224

655 Knitted or crocheted fabrics (including
tubular knit fabrics, n.e.s., pile fabri
-0.048 -0.072 -0.178 -0.228
656 Tulles, lace, embroidery, ribbons, trimmings
and other small wares
-0.113 -0.150 -0.067 0.106
657 Special yarns, special textile fabrics and
related products
0.107 0.331 0.622 1.014
658 Made-up articles, wholly or chiefly of textile
materials, n.e.s.
0.011 -0.050 -0.038 0.116
659 Floor coverings, etc. 0.197 0.497 0.693 0.758
661 Lime, cement, and fabricated construction
materials, except glass and clay mater
0.003 -0.011 -0.067 -0.155
662 Clay construction materials and refractory
construction materials
0.104 0.271 0.435 0.800
663 Mineral manufactures, n.e.s. -0.127 -0.233 -0.458 -0.845
664 Glass 0.071 0.152 0.165 0.204
665 Glassware 0.046 0.019 -0.108 -0.338
666 Pottery 0.155 0.506 0.751 0.911
667 Pearls, precious and semiprecious stones,
unworked or worked
-0.052 -0.217 -0.570 -0.968
674 Iron and nonalloy steel flat-rolled products,
clad, plated or coated
-0.126 -0.130 0.030 0.294
676 Iron and steel bars, rods, angles, shapes and
sections, including sheet piling
0.251 0.595 1.026 1.222
678 Iron and steel wire -0.064 -0.209 -0.426 -0.664
679 Iron and steel tubes, pipes and hollow
profiles, fittings for tubes and pipes
0.105 0.306 0.438 0.506
681 Silver, platinum and other platinum group
metals
0.353 1.225 2.489 4.421
682 Copper 0.417 0.977 1.327 1.576
684 Aluminum 0.016 -0.015 -0.283 -0.700
689 Miscellaneous nonferrous base metals
employed in metallurgy and cermets
0.178 0.225 0.254 0.227
691 Metal structures and parts, n.e.s., of iron, steel
or aluminum
0.083 0.291 0.522 0.801
692 Metal containers for storage or transport -0.088 -0.240 -0.410 -0.562
693 Wire products (excluding insulated electrical
wiring) and fencing grills
-0.231 -0.618 -1.315 -2.237
694 Nails, screws, nuts, bolts, rivets and similar
articles, of iron, steel, copper
-0.015 -0.083 -0.044 0.097
695 Tools for use in the hand or in machines 0.067 0.305 0.530 0.870
696 Cutlery 0.099 0.292 0.458 0.489
697 Household equipment of base metal, n.e.s. 0.151 0.514 0.835 1.103
699 Manufactures of base metal, n.e.s. -0.026 0.023 0.034 -0.077
711 Steam or other vapor generating boilers,
super-heated water boilers and auxiliar
-0.154 -0.403 -0.904 -1.466
713 Internal combustion piston engines and parts
thereof, n.e.s.
0.071 -0.085 -0.393 -1.201
714 Engines and motors, nonelectric (other than
steam turbines, internal combustion
-0.027 0.169 0.135 -0.052

716 Rotating electric plant and parts thereof, n.e.s. 0.018 0.045 0.031 -0.025
721 Agricultural machinery (excluding tractors)
and parts thereof
0.132 0.401 0.800 1.078
722 Tractors (other than mechanical handling
equipment)
-0.031 -0.044 0.007 0.228
723 Civil engineering and contractors' plant and
equipment
-0.014 -0.151 -0.311 -0.369
724 Textile and leather machinery, and parts
thereof, n.e.s.
-0.067 0.239 0.710 1.584
726 Printing and bookbinding machinery, and
parts thereof
-0.066 -0.175 -0.230 -0.246
727 Food-processing machines (excluding
domestic)
0.059 0.251 0.498 0.777
728 Machinery and equipment specialized for
particular industries, and parts thhereo
-0.058 -0.297 -0.685 -1.280
731 Machine tools working by removing metal or
other material
-0.040 -0.174 -0.449 -0.806
733 Machine tools for working metal, sintered
metal carbides or cermets, without rem
0.036 0.198 0.418 0.788
735 Parts and accessories suitable for use solely or
principally with metal working
0.019 0.027 0.088 0.178
737 Metalworking machinery (other than machine
tools) and parts thereof, n.e.s.
-0.087 -0.316 -0.618 -0.991
741 Heating and cooling equipment and parts
thereof, n.e.s.
-0.109 -0.135 -0.167 -0.128
742 Pumps for liquids, whether or not fitted with a
measuring device; liquid elevato
0.113 0.438 0.953 1.472
743 Pumps (not for liquids), air or gas
compressors and fans; ventilating hoods inco
0.022 -0.029 -0.018 0.145
744 Mechanical handling equipment, and parts
thereof, n.e.s.
0.154 0.405 0.599 1.051
745 Nonelectrical machinery, tools and
mechanical apparatus, and parts thereof, n.e.
0.070 0.108 0.233 0.390
746 Ball or roller bearings -0.251 -0.646 -1.196 -1.613
747 Taps, cocks, valves and similar appliances for
pipes, boiler shells, tanks, etc.
0.012 0.013 0.069 0.211
748 Transmission shafts and cranks; bearing
housings and plain shaft bearings; gears
0.005 0.140 0.384 0.699
749 Nonelectric parts and accessories of
machinery, n.e.s.
-0.007 0.182 0.465 0.665
751 Office machines 0.184 0.482 0.654 0.845
752 Automatic data processing machines and units
thereof; magnetic or optical reader
0.038 0.071 0.155 0.203
759 Parts and accessories suitable for use solely or
principally with office machine
-0.028 0.049 0.179 0.298
761 Tv receivers (including video monitors &
projectors) wheth r ntincorpradiobroa
0.392 1.088 2.704 3.746
763 Sound recorders or reproducers; television
image and sound recorders or reproduc
0.085 0.106 0.182 0.247

764 Telecommunications equipment, n.e.s.; and
parts, n.e.s., and accessories of appa
0.040 0.273 0.484 0.673
771 Electric power machinery (other than rotating
electric plant of power generating
-0.034 -0.050 0.002 0.070
772 Electrical apparatus for switching or
protecting electrical circuits or for maki
0.010 0.001 -0.172 -0.297
773 Equipment for distributing electricity, n.e.s. -0.180 -0.391 -0.696 -1.094
774 Electro-diagnostic apparatus for medical,
surgical, dental or veterinary science
0.299 0.387 0.341 0.086
775 Household type electrical and nonelectrical
equipment, n.e.s.
-0.154 -0.366 -0.764 -1.362
776 Thermionic, cold cathode or photocathode
valves and tubes; diodes, transistors a
-0.016 -0.216 -0.537 -0.954
778 Electrical machinery and apparatus, n.e.s. 0.024 0.280 0.504 0.774
781 Motor cars and other motor vehicles
principally designed for the transport of pe
0.187 0.466 0.857 1.279
784 Parts and accessories for tractors, motor cars
and other motor vehicles, trucks,
0.010 0.054 0.075 0.157
785 Motorcycles (including mopeds) and cycles,
motorized and not motorized; invalid
-0.177 -0.384 -0.567 -0.733
786 Trailers and semi-trailers; other vehicles, not
mechanically propelled; speciall
-0.126 -0.241 -0.490 -0.919
791 Railway vehicles (including hovertrains) and
associated equipment
0.576 1.355 2.349 3.830
792 Aircraft and associated equipment; spacecraft
(including satellites) and spacecr
-0.216 -0.486 -0.770 -1.134
793 Ships, boats (including hovercraft) and
floating structures
-0.282 -0.605 -0.723 -1.013
811 Prefabricated buildings -0.023 -0.042 -0.248 -0.317
812 Sanitary, plumbing and heating fixtures and
fittings, n.e.s.
0.029 0.091 0.170 0.231
813 Lighting fixtures and fittings, n.e.s. 0.034 0.238 0.553 0.920
821 Furniture and parts thereof; bedding,
mattresses, mattress supports, cushions an
0.152 0.514 0.797 1.124
831 Trunks, suitcases, vanity cases, binocular and
camera cases, handbags, wallets,
-0.109 -0.125 -0.203 -0.300
841 Men's or boys' coats, jackets, suits, trousers,
shirts, underwear etc. Of woven
0.165 0.353 0.567 0.879
842 Women's or girls' coats, capes, jackets, suits,
trousers, dresses, skirts, under
0.178 0.447 0.637 0.764
843 Men's or boys' coats, capes, jackets, suits,
blazers, trousers, shirts, etc. (ex
0.093 0.246 0.263 0.229
844 Women's or girls' coats, capes, jackets, suits,
trousers, dresses, underwear, et
0.040 0.218 0.372 0.549
845 Articles of apparel, of textile fabrics, whether
or not knitted or crocheted, n.
0.022 0.206 0.375 0.552
846 Clothing accessories, of textile fabrics,
whether or not knitted or crocheted (o
-0.261 -0.627 -0.971 -1.293
848 Articles of apparel and clothing accessories of 0.067 0.268 0.435 0.611

other than textile fabrics; head
851 Footwear 0.021 0.082 -0.053 -0.225
871 Optical instruments and apparatus, n.e.s. -0.365 -1.178 -2.231 -3.274
872 Instruments and appliances, n.e.s., for
medical, surgical, dental or veterinary
0.069 0.047 -0.031 -0.116
874 Measuring, checking, analysing and
controlling instruments and apparatus, n.e.s.
-0.126 -0.232 -0.265 -0.081
881 Photographic apparatus and equipment, n.e.s. 0.115 0.216 0.691 1.103
882 Photographic and cinematographic supplies 0.183 0.293 0.181 0.102
884 Optical goods, n.e.s. -0.245 -0.514 -0.708 -0.837
885 Watches and clocks -0.037 -0.094 -0.117 -0.047
891 Arms and ammunition -0.032 -0.104 -0.238 -0.457
892 Printed matter 0.001 -0.097 -0.042 0.189
893 Articles, n.e.s. of plastics 0.107 0.359 0.525 0.661
894 Baby carriages, toys, games and sporting
goods
-0.084 -0.095 0.009 0.171
895 Office and stationery supplies, n.e.s. -0.103 -0.111 0.003 0.074
896 Works of art, collectors' pieces and antiques -0.039 -0.164 -0.208 -0.288
897 Jewelry, goldsmiths' and silversmiths' wares,
and other articles of precious or
0.033 0.135 0.286 0.529
898 Musical instruments, parts and accessories
thereof; records, tapes and other sou
0.090 0.289 0.568 0.908
899 Miscellaneous manufactured articles, n.e.s. 0.081 0.259 0.543 0.875
931 Special transactions and commodities not
classified according to kind
-0.204 -0.493 -0.843 -1.166
950 Coin, including gold coin; proof and
presentation sets and current coin
-0.108 -0.104 -0.294 -0.432
971 Gold, nonmonetary (excluding gold ores and
concentrates)
0.175 0.716 1.238 1.836
984 Estimate of import items valued under $251
and of other low valued items nonexem
-0.006 0.096 0.201 0.353