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Effectiveness of monetary policy in Bangladesh

Author

Listed:
  • Md. Rafayet Alam

    (Southern Illinois University Carbondale, USA
    University of Chittagong, Bangladesh)

Abstract

This paper uses Structural Vector Autoregression models with appropriate short run restrictions to see the response of output, price and exchange rate to an exogenous monetary policy shock in Bangladesh. The impulse response functions show that an independent increase in policy interest rate is followed by decrease in output, appreciation of local currency, and increase in price level. However, the impacts are not statistically significant, implying that monetary policy is not effective in controlling short run economic fluctuations in Bangladesh. ‘Prevalence of microcredit and government domestic borrowing may weaken the effectiveness of monetary policy. Thus, when conducting the monetary policy to achieve certain goals, the central bank of Bangladesh should consider the reality of microcredit and government domestic borrowing.

Suggested Citation

  • Md. Rafayet Alam, 2015. "Effectiveness of monetary policy in Bangladesh," Journal of Developing Areas, Tennessee State University, College of Business, vol. 49(2), pages 363-372, April-Jun.
    • Handle: RePEc:jda:journl:vol.49:year:2015:issue1:pp:363-372
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    File URL: http://muse.jhu.edu/journals/journal_of_developing_areas/v049/49.2.alam.html
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    Citations

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    Cited by:

    1. Hasanujzaman, Muhammad, 2016. "The impact of export growth to stock market in a managed floating exchange rate regime: A VAR Analysis," MPRA Paper 77123, University Library of Munich, Germany, revised Oct 2016.
    2. Saidul Islam, 2024. "Investment-specific technology shocks and business cycle: evidence from a sign restriction approach," Indian Economic Review, Springer, vol. 59(1), pages 249-283, June.
    3. Rahaman, Ataur & Leon-Gonzalez, Roberto, 2021. "The effects of fiscal policy shocks in Bangladesh: An agnostic identification procedure," Economic Analysis and Policy, Elsevier, vol. 71(C), pages 626-644.
    4. Ezeibekwe Obinna Franklin, 2020. "Monetary Policy and Domestic Investment in Nigeria: The Role of the Inflation Rate," Economics and Business, Sciendo, vol. 34(1), pages 139-155, February.
    5. Ezeibekwe, Obinna Franklin, 2020. "Monetary Policy and Domestic Investment in Nigeria: The Role of the Inflation Rate," EconStor Open Access Articles and Book Chapters, ZBW - Leibniz Information Centre for Economics, vol. 34(1), pages 139-155.

    More about this item

    Keywords

    SVAR; Monetary policy;

    JEL classification:

    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies

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