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Monetary Policy Transmission Effect On The Real Sector Of The Bangladesh Economy: An Svar Approach

Author

Listed:
  • Forhad, Abdur Rahman

    (Northern Illinois University, DeKalb, IL, USA)

  • Homaifar, Ghassem A.

    (Middle Tennessee State University, Murfreesboro, TN, USA)

  • Salimullah, Abul Hasnat Muhammed

    (Middle Tennessee State University, Murfreesboro, TN, USA)

Abstract

This study examines the effectiveness of the monetary policy transmission of Bangladesh using Structural Vector Autoregressive model (SVAR) for the period of 1972-2014. The SVAR model investigates how a monetary policy shock defined as an unexpected rise in interest rate affects real and nominal macro variables; namely real output, prices, real effective exchange rates, and money supply. Our results suggest that a monetary policy shock does have a short run effect on real output, price level, and exchange rates. A monetary policy shock generates inflationary pressure leading to a devaluation of the Bangladeshi Taka. This paper suggests that the policy makers, to consider the trade-off between output and interest rate of Bangladesh. L’effetto trasmissione della politica monetaria sul settore reale dell’economia del Bangladesh: un approccio SVAR Questo articolo esamina l’efficacia della politica monetaria del Bangladesh tramite il modello SVAR nel periodo 1972-2014. Tale modello esamina come uno shock di politica monetaria, definito come un aumento inatteso nel tasso di interesse, influenzi le macrovariabili reali e nominali: la produzione reale, il livello dei prezzi e del cambio reale effettivo, l’offerta di moneta. I risultati suggeriscono che uno shock di politica monetaria ha effetto nel breve periodo sulla produzione reale, sul livello dei prezzi e sui tassi di cambio. Uno shock di politica monetaria genera una pressione inflazionistica che porta ad una svalutazione del taka. Secondo questo studio i governi dovrebbero considerare il trade-off tra produzione e tasso di interesse nel Bangladesh.

Suggested Citation

  • Forhad, Abdur Rahman & Homaifar, Ghassem A. & Salimullah, Abul Hasnat Muhammed, 2017. "Monetary Policy Transmission Effect On The Real Sector Of The Bangladesh Economy: An Svar Approach," Economia Internazionale / International Economics, Camera di Commercio Industria Artigianato Agricoltura di Genova, vol. 70(1), pages 25-46.
    • Handle: RePEc:ris:ecoint:0793
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    References listed on IDEAS

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    More about this item

    Keywords

    Bangladesh; Monetary Policy; SVAR;
    All these keywords.

    JEL classification:

    • E40 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - General
    • E50 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - General

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