Purchasing Power Parity and International Fisher Effect Hypothesis Test: Evidence from Vietnam and 12 Major Trading Partners (2000 – 2022)

Vo Thi Quy; Nguyen Quoc Thang; Nguyen Ngoc Hong Nhi; Le Quang Thang

doi:doi:10.11648/j.ajtab.20230902.12

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Purchasing Power Parity and International Fisher Effect Hypothesis Test: Evidence from Vietnam and 12 Major Trading Partners (2000 – 2022)

Vo Thi Quy, Nguyen Quoc Thang, Nguyen Ngoc Hong Nhi, Le Quang Thang

Published in American Journal of Theoretical and Applied Business (Volume 9, Issue 2)

Received: 27 April 2023 Accepted: 22 May 2023 Published: 31 May 2023

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Abstract

Amidst the expansion of the global economy and Vietnam's growing integration into the international arena, the country has formed substantial trade relations with a diverse range of nations across the globe. As a result, it is crucial to comprehend and study the dynamics of exchange rates, relying on the well-established theoretical frameworks of the Purchasing Power Parity (PPP) theory and the International Fisher Effect (IFE). Given the longstanding nature of these theories, the main purpose of this study is to assess the validity and applicability of the PPP theory and IFE in explaining the changes in exchange rates between Vietnam and its various trading partners. Employing a multiple linear regression approach, we investigated quarterly historical data comprising interest rates, inflation rates, and exchange rates of 12 trading partners, including the ASEAN-5, China, the U.S., Japan, South Korea, France, Canada, and Germany from Q1 2002 to Q4 2022. The results unequivocally show that neither the PPP theory nor the IFE can adequately explain the variations in the Vietnam Dong's exchange rate with respect to those of its trade partners, underlining the existence of significant theoretical deviations. Given these observations, policymakers and investors are strongly encouraged to adopt a holistic viewpoint, including a variety of indicators, and conducting additional research to make informed decisions that support long-term economic stability and growth.

Published in	American Journal of Theoretical and Applied Business (Volume 9, Issue 2)
DOI	10.11648/j.ajtab.20230902.12
Page(s)	30-38
Creative Commons	This is an Open Access article, distributed under the terms of the Creative Commons Attribution 4.0 International License (http://creativecommons.org/licenses/by/4.0/), which permits unrestricted use, distribution and reproduction in any medium or format, provided the original work is properly cited.
Copyright	Copyright © The Author(s), 2023. Published by Science Publishing Group

Keywords

Purchasing Power Parity, International Fisher Effect, Hypothesis Testing, Exchange Rate, Inflation Rate, Interest Rate

References

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[9]	Binh, V. T., & Le, T. P. (2019). Testing purchasing power parity in Vietnam using the nonlinear LSTAR and ESTAR models. Journal of Economic Studies, 46 (4), 892-907. doi: 10.1108/JES-05-2017-0105 Fisher, I. (1930). The theory of interest. New York: Macmillan.
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[14]	Pham, V. H., & Nguyen, T. V. A. (2021). The validity of the International Fisher Effect for Vietnam and ASEAN-5 countries. Journal of Asian Finance, Economics and Business, 8 (6), 523-532. doi: 10.13106/jafeb.2021.vol8.no6.523.
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[16]	Lee, C. Y., & Teng, K. P. (2021). Testing the validity of international Fisher effect for Vietnam and Japan: Evidence from nonlinear unit root tests. Journal of Quantitative Economics, 19 (2), 409-434. doi: 10.1007/s40953-020-00248-3.
[17]	Campbell, J. L., Chen, H., Dhaliwal, D. S., Lu, H. M., & Steele, L. B. (2014). The information content of mandatory risk factor disclosures in corporate filings. Review of Accounting Studies, 19, 396-455.
[18]	Lo, S. K., & Rogoff, K. S. (2015). Misalignment and Its Durability. In G. Gopinath, E. Helpman, & K. Rogoff (Eds.), Handbook of International Economics (Vol. 4, pp. 201-264). Elsevier.
[19]	Madura, J. (2020). International financial management. Cengage Learning.
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APA Style

Vo Thi Quy, Nguyen Quoc Thang, Nguyen Ngoc Hong Nhi, Le Quang Thang. (2023). Purchasing Power Parity and International Fisher Effect Hypothesis Test: Evidence from Vietnam and 12 Major Trading Partners (2000 – 2022). American Journal of Theoretical and Applied Business, 9(2), 30-38. https://doi.org/10.11648/j.ajtab.20230902.12

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ACS Style

Vo Thi Quy; Nguyen Quoc Thang; Nguyen Ngoc Hong Nhi; Le Quang Thang. Purchasing Power Parity and International Fisher Effect Hypothesis Test: Evidence from Vietnam and 12 Major Trading Partners (2000 – 2022). Am. J. Theor. Appl. Bus. 2023, 9(2), 30-38. doi: 10.11648/j.ajtab.20230902.12

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AMA Style

Vo Thi Quy, Nguyen Quoc Thang, Nguyen Ngoc Hong Nhi, Le Quang Thang. Purchasing Power Parity and International Fisher Effect Hypothesis Test: Evidence from Vietnam and 12 Major Trading Partners (2000 – 2022). Am J Theor Appl Bus. 2023;9(2):30-38. doi: 10.11648/j.ajtab.20230902.12

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@article{10.11648/j.ajtab.20230902.12,
  author = {Vo Thi Quy and Nguyen Quoc Thang and Nguyen Ngoc Hong Nhi and Le Quang Thang},
  title = {Purchasing Power Parity and International Fisher Effect Hypothesis Test: Evidence from Vietnam and 12 Major Trading Partners (2000 – 2022)},
  journal = {American Journal of Theoretical and Applied Business},
  volume = {9},
  number = {2},
  pages = {30-38},
  doi = {10.11648/j.ajtab.20230902.12},
  url = {https://doi.org/10.11648/j.ajtab.20230902.12},
  eprint = {https://article.sciencepublishinggroup.com/pdf/10.11648.j.ajtab.20230902.12},
  abstract = {Amidst the expansion of the global economy and Vietnam's growing integration into the international arena, the country has formed substantial trade relations with a diverse range of nations across the globe. As a result, it is crucial to comprehend and study the dynamics of exchange rates, relying on the well-established theoretical frameworks of the Purchasing Power Parity (PPP) theory and the International Fisher Effect (IFE). Given the longstanding nature of these theories, the main purpose of this study is to assess the validity and applicability of the PPP theory and IFE in explaining the changes in exchange rates between Vietnam and its various trading partners. Employing a multiple linear regression approach, we investigated quarterly historical data comprising interest rates, inflation rates, and exchange rates of 12 trading partners, including the ASEAN-5, China, the U.S., Japan, South Korea, France, Canada, and Germany from Q1 2002 to Q4 2022. The results unequivocally show that neither the PPP theory nor the IFE can adequately explain the variations in the Vietnam Dong's exchange rate with respect to those of its trade partners, underlining the existence of significant theoretical deviations. Given these observations, policymakers and investors are strongly encouraged to adopt a holistic viewpoint, including a variety of indicators, and conducting additional research to make informed decisions that support long-term economic stability and growth.},
 year = {2023}
}

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TY  - JOUR
T1  - Purchasing Power Parity and International Fisher Effect Hypothesis Test: Evidence from Vietnam and 12 Major Trading Partners (2000 – 2022)
AU  - Vo Thi Quy
AU  - Nguyen Quoc Thang
AU  - Nguyen Ngoc Hong Nhi
AU  - Le Quang Thang
Y1  - 2023/05/31
PY  - 2023
N1  - https://doi.org/10.11648/j.ajtab.20230902.12
DO  - 10.11648/j.ajtab.20230902.12
T2  - American Journal of Theoretical and Applied Business
JF  - American Journal of Theoretical and Applied Business
JO  - American Journal of Theoretical and Applied Business
SP  - 30
EP  - 38
PB  - Science Publishing Group
SN  - 2469-7842
UR  - https://doi.org/10.11648/j.ajtab.20230902.12
AB  - Amidst the expansion of the global economy and Vietnam's growing integration into the international arena, the country has formed substantial trade relations with a diverse range of nations across the globe. As a result, it is crucial to comprehend and study the dynamics of exchange rates, relying on the well-established theoretical frameworks of the Purchasing Power Parity (PPP) theory and the International Fisher Effect (IFE). Given the longstanding nature of these theories, the main purpose of this study is to assess the validity and applicability of the PPP theory and IFE in explaining the changes in exchange rates between Vietnam and its various trading partners. Employing a multiple linear regression approach, we investigated quarterly historical data comprising interest rates, inflation rates, and exchange rates of 12 trading partners, including the ASEAN-5, China, the U.S., Japan, South Korea, France, Canada, and Germany from Q1 2002 to Q4 2022. The results unequivocally show that neither the PPP theory nor the IFE can adequately explain the variations in the Vietnam Dong's exchange rate with respect to those of its trade partners, underlining the existence of significant theoretical deviations. Given these observations, policymakers and investors are strongly encouraged to adopt a holistic viewpoint, including a variety of indicators, and conducting additional research to make informed decisions that support long-term economic stability and growth.
VL  - 9
IS  - 2
ER  -

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Author Information

Vo Thi Quy

Business Administration Department, Vietnam National University – Ho Chi Minh City International University, Thu Dau Mot, Vietnam
Nguyen Quoc Thang

Business Administration Department, Vietnam National University – Ho Chi Minh City International University, Thu Dau Mot, Vietnam
Nguyen Ngoc Hong Nhi

Business Administration Department, Vietnam National University – Ho Chi Minh City International University, Thu Dau Mot, Vietnam
Le Quang Thang

Business Administration Department, Vietnam National University – Ho Chi Minh City International University, Thu Dau Mot, Vietnam

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APA Style

Vo Thi Quy, Nguyen Quoc Thang, Nguyen Ngoc Hong Nhi, Le Quang Thang. (2023). Purchasing Power Parity and International Fisher Effect Hypothesis Test: Evidence from Vietnam and 12 Major Trading Partners (2000 – 2022). American Journal of Theoretical and Applied Business, 9(2), 30-38. https://doi.org/10.11648/j.ajtab.20230902.12

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ACS Style

Vo Thi Quy; Nguyen Quoc Thang; Nguyen Ngoc Hong Nhi; Le Quang Thang. Purchasing Power Parity and International Fisher Effect Hypothesis Test: Evidence from Vietnam and 12 Major Trading Partners (2000 – 2022). Am. J. Theor. Appl. Bus. 2023, 9(2), 30-38. doi: 10.11648/j.ajtab.20230902.12

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AMA Style

Vo Thi Quy, Nguyen Quoc Thang, Nguyen Ngoc Hong Nhi, Le Quang Thang. Purchasing Power Parity and International Fisher Effect Hypothesis Test: Evidence from Vietnam and 12 Major Trading Partners (2000 – 2022). Am J Theor Appl Bus. 2023;9(2):30-38. doi: 10.11648/j.ajtab.20230902.12

Copy | Download

@article{10.11648/j.ajtab.20230902.12,
  author = {Vo Thi Quy and Nguyen Quoc Thang and Nguyen Ngoc Hong Nhi and Le Quang Thang},
  title = {Purchasing Power Parity and International Fisher Effect Hypothesis Test: Evidence from Vietnam and 12 Major Trading Partners (2000 – 2022)},
  journal = {American Journal of Theoretical and Applied Business},
  volume = {9},
  number = {2},
  pages = {30-38},
  doi = {10.11648/j.ajtab.20230902.12},
  url = {https://doi.org/10.11648/j.ajtab.20230902.12},
  eprint = {https://article.sciencepublishinggroup.com/pdf/10.11648.j.ajtab.20230902.12},
  abstract = {Amidst the expansion of the global economy and Vietnam's growing integration into the international arena, the country has formed substantial trade relations with a diverse range of nations across the globe. As a result, it is crucial to comprehend and study the dynamics of exchange rates, relying on the well-established theoretical frameworks of the Purchasing Power Parity (PPP) theory and the International Fisher Effect (IFE). Given the longstanding nature of these theories, the main purpose of this study is to assess the validity and applicability of the PPP theory and IFE in explaining the changes in exchange rates between Vietnam and its various trading partners. Employing a multiple linear regression approach, we investigated quarterly historical data comprising interest rates, inflation rates, and exchange rates of 12 trading partners, including the ASEAN-5, China, the U.S., Japan, South Korea, France, Canada, and Germany from Q1 2002 to Q4 2022. The results unequivocally show that neither the PPP theory nor the IFE can adequately explain the variations in the Vietnam Dong's exchange rate with respect to those of its trade partners, underlining the existence of significant theoretical deviations. Given these observations, policymakers and investors are strongly encouraged to adopt a holistic viewpoint, including a variety of indicators, and conducting additional research to make informed decisions that support long-term economic stability and growth.},
 year = {2023}
}

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TY  - JOUR
T1  - Purchasing Power Parity and International Fisher Effect Hypothesis Test: Evidence from Vietnam and 12 Major Trading Partners (2000 – 2022)
AU  - Vo Thi Quy
AU  - Nguyen Quoc Thang
AU  - Nguyen Ngoc Hong Nhi
AU  - Le Quang Thang
Y1  - 2023/05/31
PY  - 2023
N1  - https://doi.org/10.11648/j.ajtab.20230902.12
DO  - 10.11648/j.ajtab.20230902.12
T2  - American Journal of Theoretical and Applied Business
JF  - American Journal of Theoretical and Applied Business
JO  - American Journal of Theoretical and Applied Business
SP  - 30
EP  - 38
PB  - Science Publishing Group
SN  - 2469-7842
UR  - https://doi.org/10.11648/j.ajtab.20230902.12
AB  - Amidst the expansion of the global economy and Vietnam's growing integration into the international arena, the country has formed substantial trade relations with a diverse range of nations across the globe. As a result, it is crucial to comprehend and study the dynamics of exchange rates, relying on the well-established theoretical frameworks of the Purchasing Power Parity (PPP) theory and the International Fisher Effect (IFE). Given the longstanding nature of these theories, the main purpose of this study is to assess the validity and applicability of the PPP theory and IFE in explaining the changes in exchange rates between Vietnam and its various trading partners. Employing a multiple linear regression approach, we investigated quarterly historical data comprising interest rates, inflation rates, and exchange rates of 12 trading partners, including the ASEAN-5, China, the U.S., Japan, South Korea, France, Canada, and Germany from Q1 2002 to Q4 2022. The results unequivocally show that neither the PPP theory nor the IFE can adequately explain the variations in the Vietnam Dong's exchange rate with respect to those of its trade partners, underlining the existence of significant theoretical deviations. Given these observations, policymakers and investors are strongly encouraged to adopt a holistic viewpoint, including a variety of indicators, and conducting additional research to make informed decisions that support long-term economic stability and growth.
VL  - 9
IS  - 2
ER  -

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