LAUSR

Using autoregressive distributed lag (ARDL) methodology with both aggregate and disaggregate data, the purpose of this study is to examine the effects of the VND/CNY currency exchange rate (including exchange rate level and volatility) on trade flows between Vietnam and China. In the disaggregate models, the long-run results indicate that nine import commodities (accounting for approximately 28.67% of the total import value) are sensitive to changes in the real exchange rate level, and nine export commodities (accounting for approximately 39.15% of the total export value) also respond to changes in the exchange rate level. Most of the unaffected commodities are raw, intermediate, and simply processed products (the biggest components in total import value). The study also finds that export commodities are more sensitive to exchange rate volatility than import commodities. In addition, the results of the aggregate model indicate that there is no statistical evidence of any linkage between the exchange rate and trade (exports and imports). In other words, the exchange rate is unlikely to be an effective tool to improve the trade balance between Vietnam and China. This study contributes towards the empirical argument for effective coordination between the monetary and trade policy of Vietnam.   Keywords: trade; deficit, exchange rate, import, export, China, Vietnam, autoregressive distributed lag