Monetary Policy Efficacy for Price Stability: An In-depth Analysis of Bangladesh’s Economic Landscape

Authors

  • Dr. Masud Rana Pabna University of Science and Technology, Bangladesh
  • Dr. Md. Abdullah Al Mamun Pabna University of Science and Technology, Bangladesh
  • Dr. Md. Kamal Hossain Pabna University of Science and Technology, Bangladesh
  • Rebeka Sultana Rekha Pabna University of Science and Technology, Bangladesh

Keywords:

Effectiveness, Monetary Policy, Price Stability, Bangladesh

Abstract

Purpose of the study: This study aims is to examine the effectiveness of monetary policy on price stability in Bangladesh.

Methodology:  The researcher has collected secondary data from the audited annual reports of the Bangladesh bank from 2014 to 2022. The inflation rate selected as the dependent variable, and the exchange rate, real interest rate, cash reserve ratio, and repo rate selected as the independent variables. The study used regression analysis to find out the relationship between dependent and independent variables, which is supported by the results of normality tests, multicollinearity tests, and autocorrelation tests.

Findings: The study found that there was a statistically significant relationship between the dependent variable inflation rate and the independent variables cash reserve ratio and repo rate. On the other hand, there was no significant relationship between the dependent variable's inflation rate and the independent variables' exchange rate and real interest rate. The relationship between the inflation rate and the exchange rate was almost significant. Therefore, the study found that monetary policy has a significant impact on price stability in Bangladesh.

Implications: The finding of the present study has been found to have implications for policy makers, regulators, professional, practitioners, researchers, economists etc. in the money market of Bangladesh.

Limitations and Future direction: This study has covered the operating of monetary policy for 9 years from 2014 to 2022 though I could consider since 1971. In addition, the study has considered only Bangladesh Bank and listed conventional private commercial banks. The study has not addressed application of monetary policy in NBFIs and capital market.

References

Abdullah, M. N., Parvez, K., & Tooheen, R. B. (2012). Impacts of monetary policy on inflation in Bangladesh. Global Disclosure of Economics and Business, 1(2), 103-119.

Adegboye, A. C. (2013). A dynamic analysis of monetary policy and price stability in Nigeria. Published by Department of Economics, Adeyemi College of Education, Ondo, 1-18.

Alsaeed, K. (2006). The association between firm‐specific characteristics and disclosure: The case of Saudi Arabia. Managerial Auditing Journal, 21(5), 476-496.

Babatunde, A. A., & Kehinde, I. V. (2016). The impact of monetary policy on price stability in Nigeria. Global Journal of Economics and Business Administration, 1(2), 14-26.

Bandoi, A., Berceanu, D., & Danciulescu, D. (2009). Price stability and financial stability in the context of EUROSYSTAM's monetary policy. European Research Studies, 12(4).

Bassey, G. E., & Akpan, P. E. (2016). The effect of monetary policy on price stability in Nigeria (1970–2014). International Journal of Social Sciences, 10(4), 1-16.

Bordes, C., & Clerc, L. (2007). Price Stability and the ECB'S monetary policy strategy. Journal of Economic Surveys, 21(2), 268-326.

Brahmachary, A. (2019). Impact of Monetary Policy on Indian Economic Growth and Price Stability in the 21st Century: An Exploratory Study. In The Impacts of Monetary Policy in the 21st Century: Perspectives from Emerging Economies. 351–360, Emerald Publishing Limited.

Çağlayan, E., & Astar, M. (2010). Taylor rule: Is it an applicable guide for inflation targeting countries. Journal of Money Investment and Banking, 18, 55-67.

Chukwuemeka, N. (2018). Monetary policy and price stability in Nigeria (1981-2015). Journal of Economics and Sustainable Development, 9(10), 52-57.

Coenen, G., Orphanides, A., & Wieland, V. (2004). Price stability and monetary policy effectiveness when nominal interest rates are bounded at zero. Advances in Macroeconomics, 4(1).

Dickens, E. (2011). Keynes's Theory of Monetary Policy: An Essay in Historical Reconstruction. Contributions to Political Economy, Oxford University Press, vol. 30(1), pages 1-11.

Frost, J., (2022). Normal distribution in statistics. Statistics by Jim. Retrieved February 8, 2022, from https://statisticsbyjim.com/basics/normal-distribution/

Glen, S. (2013). F statistic/F value: Simple definition and interpretation. Retrieved January, 20, 2018.

Gujarati, D. N., Porter, D. C., & Gunasekar, S. (2012). Basic econometrics. Tata mcgraw-hill education.

Hair, J. F. Jr., Anderson, R. E., Tatham, R. L. and Black, W. C. (1995). Multivariate Data Analysis (3rd edition). New York: Macmillan.

Hayes, A. (2021). Multicollinearity.https://www.investopedia.com/terms/m/multicollinearity.asp

Henseler, J., Ringle, C. M., & Sinkovics, R. R. (2009). The use of partial least squares path modeling in international marketing. In New challenges to international marketing. Emerald Group Publishing Limited, Bingley, pp. 277-319.

Hossain, A. A. (2010). Monetary targeting for price stability in Bangladesh: How stable is its money demand function and the linkage between money supply growth and inflation? Journal of Asian Economics, 21(6), 564-578.

Itodo, I. A., Akadiri, S. S., & Ekundayo, R. M. (2017). Monetary policy and price stability in Nigeria. Academic Journal of Economic Studies, 3(2), 68-75.

Johnson, K., Small, D. H., & Tryon, R. W. (1999). Monetary policy and price stability. International Finance Working Paper, (641).

Kaldor, N. (1970): The new monetarism, in: Lloyds Bank Review, 97(1), 18.

Kapounek, S., & Lacina, L. (2007). Money supply growth and inflation-the monetary policy strategy of the European central bank. Rocnik LV, 4(3), 57-66.

Kennedy, P. (1992). Violating assumption five: Multicollinearity. Guide to econometrics, 192-202.

Marquardt, Donald W., and Ronald D. Snee. "Ridge regression in practice." The American Statistician 29, no. 1 (1975): 3-20.

Onderi, V. N., & Njuru, S. G. (2015). The impact of monetary policy on economic growth and price stability in Kenya: 1992–2013. IOSR Journal of Economics & Finance, 6(6), 95-109.

Ozili, Peterson. (2016). Re: What is the acceptable r-squared value?. Retrieved from: https://www.researchgate.net/post/what_is_the_acceptable_r-squared_value/57cfcb0d3d7f4be2fb47f515/citation/download.

Pan, Y., & Jackson, R. T. (2008). Ethnic difference in the relationship between acute inflammation and serum ferritin in US adult males. Epidemiology & Infection, 136(3), 421-431.

Rivel, B. P. D., & Yirong, Y. (2020). The effect of monetary policy on the general price level in the democratic Republic of Congo. American Journal of Economics, 10(6), 407-417.

Rogerson, P.A., 2001. Statistical Methods for Geography. Sage Publishing.

Soni, D. Impact of monetary policy on Price stability and financial stability in India.

Svensson, L. E. (2000). How should monetary policy be conducted in an era of price stability? (No. w7516). National bureau of economic research.

Woodford, M. (1999). Commentary: How should monetary policy be conducted in an era of price stability?.New challenges for monetary policy, 277316.

Zayed, N. M. (2018). Testing Taylor’s rule to examine monetary policy regarding bank rate, inflation and output gap of Bangladesh: 1972-2016. Academy of Accounting and Financial Studies Journal, 22(1), 1-11.

Downloads

Published

2023-12-31

How to Cite

Rana, D. M., Mamun, D. M. A. A., Hossain, D. M. K., & Rekha, R. S. (2023). Monetary Policy Efficacy for Price Stability: An In-depth Analysis of Bangladesh’s Economic Landscape. AIUB Journal of Business and Economics, 20(2), 52–66. Retrieved from https://ajbe.aiub.edu/index.php/ajbe/article/view/200