This study shows the short and long-run impact of exchange rate on trade balance in Vietnam.
Following a depreciation of real exchange rate, trade balance initially deteriorates. Trade balance
will improve after four quarters and new equilibrium will be set after twelve quarters.
Autoregressive distributed lag (ADRL) are used to explore long-run impact, showing trade balance
improvement when real exchange rate depreciates. Corresponding error correction model (ECM)
based on long-run cointegration equation indicates immediate deterioration of trade balance after a
depreciation. Impulse response functions based ECM exhibit J-curve pattern of trade balance when
there is a permanent depreciation.