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Bank Parikrama: A Journal of Banking & Finance

ISSN: 1019-7044

Volume XLV (3 & 4) & XLVI (1 & 2), September 2020 - June 2021

Published: April 2022

Pages:

Determining the Monetary Dynamics of Inflation in Bangladesh

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Abstract

The present study is a modest effort that examines the relationship between money, prices, interest rates and output in Bangladesh considering the Quantity Theory of Money (QTM) framework in order to determine the monetary dynamics of inflation in Bangladesh using annual time series data from 1973 to 2016. The empirical findings indicate that in the long-run, money supply growth has a positive and significant relationship with inflation and money supply can be considered as an exogenous factor in determining inflation, while the short-run dynamic adjustments are found to be statistically significant in inflation and economic growth only. Causality running from inflation to change in interest rates gives evidence supporting the well-known Fisher effect in Bangladesh. The evidence from the study also supports the major implications of QTM for the Bangladesh economy.

Keywords: Inflation; Money Supply; Quantity Theory of Money; Cointegration; Granger Causality; VECM; Bangladesh

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