Real Exchange Rate Behaviour and Exchange Rate Misalignments in Bangladesh

A.K.M. Rahman and Syed Abul Basher
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Syed Abul Basher: Graduate Student, Department of Economics, York University, Canada

Bangladesh Development Studies, 2001, vol. 27, issue 2, 69-93

Abstract: The paper adopts a single equation approach to examine the real exchange rate behaviour and exchange rate misalignment in Bangladesh. The paper finds that real exchange rate and the macroeconomic fundamentals affecting real exchange rate form a cointegrating vector. It observes that trade liberalization and increase in debt service burden result in a real depreciation of currency; while increase in capital inflow, improvement in terms of trade, and increase in government consumption of non-tradable result in a real appreciation of currency. Nominal devaluation has been able to partly retain its effect to have a real devaluation in the short run. Estimation of long run equilibrium real exchange rate reveals that our currency was considerably overvalued until late 1980s. However, real exchange rate broadly was in equilibrium during the 1990s.

Keywords: Real exchange rates; Equilibrium exchange rates; Foreign exchange rates; Sustainable economies; Imports; Currency; Terms of trade; Development studies; Debt service; Gross domestic product (search for similar items in EconPapers)
JEL-codes: A10 (search for similar items in EconPapers)
Date: 2001
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Citations: View citations in EconPapers (6)

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Persistent link: https://EconPapers.repec.org/RePEc:ris:badest:0415

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