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Exchange Rate Pass-Through in Bangladesh's Export Prices: An Empirical Investigation

Mohammad Mainul Hoque and Mohammad Razzaque ()
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Mohammad Mainul Hoque: Research Fellow, Bangladesh Institute of Development Studies (BIDS), Dhaka, Bangladesh.

Bangladesh Development Studies, 2004, vol. 30, issue 1-2, 35-64

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: Exchange Rate; Bangladeshs Export Prices; Empirical Investigation (search for similar items in EconPapers)
JEL-codes: A10 (search for similar items in EconPapers)
Date: 2004
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