The Monetary Transmission Mechanism in Bangladesh: Bank Lending and Exchange Rate Channels

Shamim Ahmed and Md. Ezazul Islam
Additional contact information
Shamim Ahmed: Research Economists, Policy Analysis Unit, Research Department, Bangladesh
Md. Ezazul Islam: Research Economists, Policy Analysis Unit, Research Department, Bangladesh

Bangladesh Development Studies, 2004, vol. 30, issue 3-4, 31-88

Abstract: In view of changes in legal, institutional and policy frameworks in the financial system of Bangladesh under the Financial Sector Reform Program (FSRP) initiated in the early 1990s, the paper attempted to empirically investigate whether bank lending and exchange rate channels exist in the economy through which monetary policy changes can influence aggregate output and prices. An assessment of the empirical evidence has been established through the unrestricted vector autoregressions (VARs) approach using quarterly data for the period of July-September 1979 to April-June 2005. The results of the empirical analysis suggest weak existence of both bank lending and exchange rate channels in the Bangladesh economy for the full-sample period as well as in the sub-sample period (i.e., January-March 1990 to April-June 2005). These findings have important implications with respect to the operation of monetary policy. Specifically, knowing the distinct active channels of monetary transmission in the economy would guide the monetary authority in formulating and conducting monetary policy pursuant to its objectives under the current regime, i.e., floating exchange rate and market based monetary policy instruments

Keywords: Monetary Transmission; Mechanism in Bangladesh; Bank Lending; Exchange Rate Channels (search for similar items in EconPapers)
JEL-codes: A10 (search for similar items in EconPapers)
Date: 2004
References: Add references at CitEc
Citations: View citations in EconPapers (12)

Downloads: (external link)
http://bids.org.bd/uploads/publication/BDS/30/30-3&4/02_ahmed%20&%20Islam.pdf Full text (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:ris:badest:0460

Access Statistics for this article

Bangladesh Development Studies is currently edited by Dr. Binayak Sen

More articles in Bangladesh Development Studies from Bangladesh Institute of Development Studies (BIDS) E-17, Agargaon, Sher-E-Bangla Nagar, Dhaka 1207. Contact information at EDIRC.
Bibliographic data for series maintained by Meftaur Rahman, Cheif Publication Officer, BIDS ().