Monetary Policy, Output, and Inflation in Bangladesh: A Dynamic Analysis

Document Type

Article

Language

eng

Format of Original

5 p.

Publication Date

3-1995

Publisher

Taylor & Francis (Routledge)

Source Publication

Applied Economics Letters

Source ISSN

1350-4851

Abstract

This paper investigates the relationship between money, prices, output, and the exchange rate in Bangladesh during the 1974–92 period. Several interesting conclusions can be derived from the paper. First, the inflationary process in Bangladesh cannot be explained exclusively by the monetarist or the structuralist explanation of inflation. Second, regardless of the monetary aggregate employed, monetary policy exerts a significant unidirectional impact on real output. Third, monetary policy and inflation together account for a significant portion of fluctuations in the exchange rate. Finally, it is noted that monetary shocks have a strong, but relatively short-run, impact on inflation. In light of these findings, it can be concluded that monetary policy in Bangladesh should be carried out with extreme caution. While tight money may put a short-term halt to inflation and help stabilize the foreign trade sector, it may also cause a slowdown in the economy.

Comments

Applied Economics Letters, Vol. 2, No. 3 (March 1995): 51-55. DOI.

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