The role of aggregate demand and supply shocks in a low-income country:evidence from Bangladesh

Omar H.M.N. Bashar0 ()
Additional contact information
Omar H.M.N. Bashar0: Deakin University, Australia
Authors registered in the RePEc Author Service: Omar HMN Bashar ()

Journal of Developing Areas, 2011, vol. 44, issue 2, 243-264

Abstract: This paper explores the relative role of aggregate demand and supply shocks in affecting the output level and inflation rate in a low-income country vulnerable to various economic shocks. The study uses Bangladesh data, and following Cover et al (2006), employs a modification of the Blanchard-Quah (BQ) approach, in which the two shocks are allowed to be correlated. Strong evidence is found for the hypothesis that aggregate demand and supply shocks are interrelated in Bangladesh. For the case in which causality is assumed to be running from demand to supply shocks, it was found that an independent supply shock plays significant role for fluctuations in inflation, which was absent in the standard BQ model. The results suggest that a tightening of monetary policy may lead to an adverse effect on the long-run growth potential and some supply-side policies may be required to supplement contractionary monetary policy in combating inflation in Bangladesh.

Keywords: Aggregate Demand and Supply Shocks; Blanchard-Quah Decompositions; Monetary Policy; Bangladesh (search for similar items in EconPapers)
JEL-codes: C32 E3 O11 (search for similar items in EconPapers)
Date: 2011
References: Add references at CitEc
Citations:

Downloads: (external link)
http://muse.jhu.edu/journals/journal_of_developing_areas/v044/44.2.bashar.html

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:jda:journl:vol.44:year:2011:issue2:pp:243-264

Access Statistics for this article

More articles in Journal of Developing Areas from Tennessee State University, College of Business Contact information at EDIRC.
Bibliographic data for series maintained by Abu N.M. Wahid ().