Project title: “Estimating the devi

Project title: “Estimating the deviation of real effective exchange rate of the period 2000 - 2014 in Vietnam: The approach from the effect equilibrium exchange rate model”.
Abstract
Unlike previous studies, in this paper we used data from 35 countries with the largest proportion of trade with Vietnam to calculate real effective exchange rate (REER). The estimation results show that, as of the present time, Vietnamese Dong is undervalued by 5.57%, while the degree of openness of the economy and domestic credit are the two most important variables that effectively explain the volatility of the real exchange rate.
I. Introduction
Real effective exchange rate (REER) is used to determine an individual country's currency value relative to the other major currencies in the index, as adjusted for the effects of inflation. The equilibrium real exchange rate is often used as a benchmark for assessing whether the actual real exchange rate is too strong or too weak. The equilibrium real effective exchange rate (EREER) is often used as a benchmark for assessing whether the actual real effective exchange rate (REER) is too strong or too weak. Internal balance means that the general price level in the economy is stabilizing and labor is used in the state of full employment. External balance means that the current account balance is maintained at a stable level.
Estimating the deviation of real effective exchange rate in Vietnam is the calculation of the difference between the REER and EREER. It will show that the currency of Vietnam was high or low in the current economic situation while Vietnam is facing a number of problems such as rising inflation, trade deficit growing, the proportion of import on GDP is higher and higher and pressure from the increase in the foreign investment flows, ... This is the reason for the exchange rate fluctuated continuously in recent years.
From the lessons in countries around the world have shown that the level of fluctuations in rates may be the primary cause of the financial -monetary crisis, can score through such as the crisis in Mexico (1994), financial-monetary crisis (from 1997 to 1998) in Thailand, Indonesia and South Korea or the crisis in Argentina (2000). Therefore, the calculation of the degree of misalignment of the exchange rate is absolutely essential and urgent because it might create a "steel-shield" to cope with shocks threatening national economy.
To calculate the REER index, in this study, we will use a basket of currencies including the 35 countries with the largest commercial gravity for Vietnam. Besides, the method of determining the EREER was based on previous studies such as: Edwards (1988), Elbadawi (1998), Zulfiqar and Adil (2005), Plamen and Elena (2005), Ting (2009), James (2009). All these studies were calculated deviation in the real effective exchange rate. However they have not referred to the factors that have the most important role in explaining the discrepancy. This paper will focus on overcoming the restrictions.
The paper is organized as follows. Section 2 presents the empirical model. Section 3 describes the data. Section 4 discusses the estimated results. Finally, Section 5 concludes.