A study on purchasing power parity in Vietnam and United State

Abstract

The objective of this research is to investigate the relationship of Purchasing Power Parity (PPP) between Vietnam and United States (U.S). Conducted were unit root test; Johansen Co-integration test; Vector Error Correction Model, and monthly time series data spans from January 2010 to De- cember 2015. The results support the theory of PPP holding between Vietnam and U.S. Based on this result, policy makers can calculate the real exchange rate, and find out the effect of exchange rate on trade balance in order to set suitable policies to improve trade balance. The managers of MNCs can forecast the bilateral exchange rate to find the best options to reduce risk or maximize profit.