Relationship between threshold level of inflation and economic growth in Bangladesh- a multivariate quadratic regression analysis

Md Asaduzzaman

MPRA Paper from University Library of Munich, Germany

Abstract: The main objective of this study is to empirically examine the relationship between inflation and economic growth in Bangladesh and to investigate the ongoing possible threshold effect. This study draws on diverse tables and charts, correlation matrices, pair-wise Granger Causality tests, ADRL (General to Specific Approach) test, and a quadratic regression equation estimated by OLS using time series annual data covering the sample period from 1980 to 2017. The results demonstrate that the relationship between inflation and GDP growth is non-linear with a subsistence of a breakpoint, which means the inverted U-shape curve. Moreover, the Granger Causality shows that economic growth does granger cause inflation. The empirical result indicates that when the inflation level reaches the threshold level at 7.84 percent then the economic growth is in peak position. This study proposed that the Bangladesh Bank should maintain the precautious and growth-friendly monetary policy structure by keeping inflation targeting below 7.84 percent, or else the growth might be held back.

Keywords: Threshold Inflation; GDP Growth; Quadratic Regression Model; Bangladesh Economy (search for similar items in EconPapers)
JEL-codes: C1 C15 C3 C32 E0 E5 E52 E58 E6 O4 O42 O47 (search for similar items in EconPapers)
Date: 2021-02-02, Revised 2021-02-02
New Economics Papers: this item is included in nep-ban, nep-fdg, nep-isf, nep-mac and nep-mon
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Published in ERN: Other Development Economics: Macroeconomic Issues in Developing Economies (Topic) (2021): pp. 1-21

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