The paper aims at exploring effects of currency devaluation on Vietnam’s economic growth. Our approach is to employ smooth transition regression (STR) to estimate relationship between real exchange rate, money supply, and public expenditure with Vietnam’s GDP in 2000-2012. | 110 | Nguyễn Minh Hải, Phan Tất Hiển & Đặng Huyền Linh | 110-119 An Analysis of Impacts of Currency Devaluation on Economic Growth in Vietnam in 2000-2012 NGUYỄN MINH HẢI Quang Trung University Email: PHAN TẤT HIỂN Saigon University Email: hienphantat18@ ĐẶNG HUYỀN LINH Development Strategy Institute, MPI Email: linh_dh@ ARTICLE INFO Received: 30/10/2012 Received in revised form 21/02/2013 Accepted: 15/06/2013 Keywords: currency devaluation economic growth smooth transition regression (STR) exchange rate money supply growth output Vietnam ABSTRACT The paper aims at exploring effects of currency devaluation on Vietnam’s economic growth. Our approach is to employ smooth transition regression (STR) to estimate relationship between real exchange rate, money supply, and public expenditure with Vietnam’s GDP in 2000-2012. The results show that currency devaluation can increase output if growth of money supply is less than , and it may produce negative effects on the output when the money supply grows higher than the above threshold. An Analysis of Impacts of Currency Devaluation JED July 2013| 111 1. INTRODUCTION Currency devaluation is usually used for improve balances of trade and of payments on current accounts and increase foreign exchange reserves. Although it is generally agreed that currency devaluation is an important instrument for adjusting external imbalances, there is controversy about whether currency devaluation supports economic growth. This paper aims at analyzing impacts of currency devaluation on Vietnam’s economic growth in 2000-2012. More precisely, authors employ STR to explore reaction of output to fluctuations in exchange rate. The approach can clarify the conditions which show that currency devaluation results in decreasing or increasing output depending on the rate of growth of money supply. 2. METHODOLOGY AND APPLICATION OF MODEL a. Methodology: The traditional theories of .
