ISSN: 1019-7044
Volume XLV (3 & 4) & XLVI (1 & 2), September 2020 - June 2021
Published: April 2022
Pages:
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In the context of Bangladesh Bank aiming for a gradual transition towards a price-based approach for its future monetary policy management, this study makes a humble effort to empirically investigate the current status of monetary transmission mechanism in Bangladesh using a two-stage policy rate pass-through framework (a price-based approach). The findings of the study will facilitate Bangladesh Bank’s transition initiatives. By covering a recent dataset on the policy, market, and retail rates and using a combination of empirical tools, the study finds that monetary transmission mechanism in the country is imperfect in terms of functioning of the two-stage policy rate pass-through framework. Notably, this imperfection in the transmission mechanism arises from the fact that Bangladesh Bank does not effectively use its policy rate (repo rate) in monetary policy management. In fact, the policy rate has been lagging the market and retail rates over the years.
Keywords: Monetary Transmission Mechanism , Price-based Monetary Policy , Policy Rate Pass-through
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