Does Money Supply Matter for Inflation in Bangladesh? An ARDL Investigation


  • Sudip Dey Premier University Chittagong
  • Umme Salma Premier University Chittagong


Inflation; Broad Money Supply; Narrow Money Supply; Auto-regressive Distributed Lag Model (ARDL)


Purpose of the study: Inflation is currently a persistent economic problem in Bangladesh. The intention of this research is to figure out whether money supply is the source of inflation in the long-run and short-run in the context of Bangladesh's changing macroeconomic environment throughout 1986 and 2021. 

Methodology: For the investigation, the augmented Dickey-Fuller (ADF) and Phillips-Perron (PP) tests are employed to investigate the stationarity of the variables, while the auto-regressive distributed lag (ARDL) model is utilized to estimate the long-run and short-run effects. Eviews-10 software is used to analyze the annual time series data.

Findings: When corrected for inflation, the F-bound test reveals that the variables (broad and narrow money supply, gross domestic product, and exchange rate) exhibit a single long-run cointegration relationship. The study's long-run impacts show that broad and narrow money supplies have a positive and significant influence on inflation. The short-run error correction model, on the other hand, demonstrates that the rate of adjustment is extremely rapid (approximately 97 percent), which is negative and significant at the 1 percent level of significance.

Implications: According to the research, the money supply contributes to increasing inflation in Bangladesh. To combat inflation, the research recommends that the Bangladesh government should undertake fiscal and monetary measures, implement exchange rate and import restriction regulations, improve fiscal discipline, address supply-side constraints, and collaborate with international organizations.

Limitations and Future direction: Future studies can use different econometric methods to retest the results in similar economic situations. Moreover, the addition of new independent variables such as government expenditure, tax rate, interest rate, etc. can explore new dimensions.


Abdullah, M. N., Parvez, K., & Tooheen, R. B. (2012). Impacts of Monetary Policy on Inflation in Bangladesh.Global Disclousure of Economics & Business, 1(2), 103-119.

Ali, M. M., & Islam, A. M. (2010). Money Supply Function for Bangladesh: An Empirical

Analysis. AIUB Bus Econ Working Paper Series, No 2010-01,

Bangladesh Bank. (2023).

Bangladesh Bank. (2023).

Bangladesh Bureau of Statistics. (2023).

Bangladesh Economic Review. (2022). Ministry of Finance, Government of the People's Republic of Bangladesh.

Boon, D. T. H., & Zubaidi, D. B. A. (1999). Dynamic Causal Chain of Money, Output, Interest Rate and Prices in Malaysia: Evidence Based on Vector Error- Correction Modelling Analysis. International Economic Journal, 13(1), 103-120.

Dickey, D. A., & Fuller, W. A. (1979). Distribution of the Estimators for Autoregressive Time Series With a Unit Root. Journal of the American Statistical Association, 74(366), 427-431.

Gocmen, T. (2016). Causal Relationship between Money and Inflation During a High Inflation Period : The Case of Turkey. Journal of International Business & Economics, 4(2), 1-11.

Islam, R., Ferdous, R., Sultana, N., & Nomi, M. (2022). Major Macroeconomic Determinants of Inflation in Bangladesh : An ARDL Bound Test Approach. Economics, 11(4), 200-210.

Kemal, M. A. (2006). Is Inflation in Pakistan a Monetary Phenomenon? The Pakistan Development Review,45(2), 213-220.

Khan, M. S. (2019). Money , Output and Inflation in Bangladesh : A Test of Cointegration and Causality. Journal of Economics & Development, 10 (10), 155-165.

Omanukwue, P. N. (2010). The Quantity Theory of Money: Evidence from Nigeria. Economic & Financial Review, 48(2), 91-107.

Pesaran, M. H., Shin, Y., & Smith, R. (2001). Bounds Testing Approaches to the Analysis of Level Relationships. Journal of Applied Econometrics, 16(3), 289-326.

Phillips, P. C. B., & Perron, P. (1988). Testing for a Unit Root in Time Series Regression. Biometrika, 75(2), 335-346.

Sayeda, T. (2019). Nexus Between Economic Growth and Inflation : Evidence from Bangladesh. Journal of Economics & Sustainable Development, 10 (16), 19-24.

Sultana, N. (2018). Impacts of Money Supply, Inflation rate, and the Interest Rate on Economic Growth: A Case of Bangladesh. Journal of Emerging Technologies and Innovative Research, 66-78.

Sultana, N., Koli, R., & Firoj, M. (2019). Causal Relationship of Money Supply and Inflation: A Study of Bangladesh. Asian Economic and Financial Review, 9 (1), 42-51.

Tékam, O. H. (2018). Monetary policy and inflation: Empirical Evidence from Cameroon. International Journal of Economics, Finance and Management Sciences, 6 (5), 200-207.

Uddin, M. N., Uddin, M. J., & Ahmmed, M. (2019). Money and Inflation Nexus in Bangladesh. Asian Economic & Financial Review, 9 (6), 702-711.

Uddin, S., Chowdhury, M. N. M., & Hossain, D. M. A. (2018). Determinants of Inflation in Bangladesh : An Econometric Investigation. Journal of World Economic Research, 3(6), 83-94.

World Bank. ( 2019). World Bank national accounts data, and OECD National Accounts data files.

World Data Atlas. (2022).




How to Cite

Dey, S., & Salma , U. (2023). Does Money Supply Matter for Inflation in Bangladesh? An ARDL Investigation. AIUB Journal of Business and Economics, 20(1), 64–75. Retrieved from