As the economy of Vietnam is highly dollarized, fluctuations in the exchange rate affect not
only the prices of tradable goods but also those of non-tradable goods. For example, in
Vietnam, some non-tradable goods - particularly durable goods and real estate - are prices in
dollars. In addition, some services, including some long-term contracts and rents, are also
quoted in dollars. As a result, exchange rate variations pass through to domestic inflation for
a broader set of goods than in a non-dollarized economy. Moreover, following an exchange
rate depreciation, a rise in the price of tradable goods and of non-tradable goods whose prices
are indexed to the exchange rate affects the demand for, and supply of, other non-tradable
goods. The change in the price of non-tradable goods is thus defined by Goujon (2006) as