An econometric model of the monetary sector of the Bangladesh economy

An econometric model of the monetary sector of Bangladesh is formulated and estimated using annual data for the period 1974-87. The model is evaluated using a range of diagnostic tests and the results from dynamic simulations. The simulations indicate that, historically, inflation, real output growth and monetary growth are all consistent with a structuralist framework in which exogenous shocks such as harvest failures play a leading role in monetary expansions via their effects on food prices. Accommodationist monetary polices may generate further inflationary pressures, though there may be short periods during which monetary expansions increase real output. Excess supplies of real money balances do not appear to have any significant impact on real expenditures. -Authors