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Effects of Changes in Foreign Exchange Reserves and Real Effective Exchange Rate on Industrial Output Growths in Bangladesh

Matiur Rahman and Prashanta K. Banerjee
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Matiur Rahman: Professor of Finance, McNeese State University, 4205 Ryan Street Lake Charles, LA, USA
Prashanta K. Banerjee: Professor of Banking and Finance, Bangladesh Institute of Bank Management, Mirpur, Dhaka, Bangladesh

Asian Economic and Financial Review, 2017, vol. 7, issue 12, 1144-1152

Abstract: This paper studies the effects of foreign exchange reserves and real effective exchange rate on industrial output in Bangladesh. Quarterly data are used from 1981-1982 to 2013-2014. The standard ARDL procedure and VECM are applied. Both DF-GLS and Ng-Perron efficient tests exhibit non-stationarity of each variable in log-level with I (1) behavior. The ARDL estimates provide evidence of co-integration among the variables. The VECM estimates confirm convergence with moderate pace of adjustment toward long-run equilibrium. Short-run net interactive effect of foreign reserves on industrial output is weakly positive while the net effect of real effective exchange rate is negative.

Keywords: Foreign exchange reserves; Real effective exchange rate; Industrial output; ARDL; VECM. (search for similar items in EconPapers)
Date: 2017
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Handle: RePEc:asi:aeafrj:2017:p:1144-1152