Does monetary policy matter in a less developed economy? Evidence from Bangladesh

Bashar, Omar H.M.N. 2008, Does monetary policy matter in a less developed economy? Evidence from Bangladesh, in ACE 2008 : Proceedings of the 37th Australian Conference of Economists, Economic Society of Australia, Brisbane, Qld., pp. 1-35.

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Title Does monetary policy matter in a less developed economy? Evidence from Bangladesh
Author(s) Bashar, Omar H.M.N.
Conference name Australian Conference of Economists (37th : 2008 : Gold Coast, Queensland)
Conference location Gold Coast, Queensland, Australia
Conference dates 30th September - 4th October 2008
Title of proceedings ACE 2008 : Proceedings of the 37th Australian Conference of Economists
Editor(s) [Unknown]
Publication date 2008
Conference series Australian Conference of Economists
Start page 1
End page 35
Total pages 35
Publisher Economic Society of Australia
Place of publication Brisbane, Qld.
Keyword(s) monetary policy
identification
structural VAR
Summary This paper explores the role of monetary policy in the context of a less developed economy. Monetary transmission mechanisms in less developed economies can be quite different from an industrialized economy, as unlike industrialized countries, these economies are characterized by the small size of organized financial markets, limited substitutability between money and other assets and weak fiscal and monetary institutions. We utilize the Structural VAR approach to analyze the monetary transmission process and impacts of monetary policy on different macro variables in Bangladesh. Monetary policy shocks are identified using non-recursive contemporaneous restrictions, which are based on the Central Bank's reaction function and the structure of the economy. We found strong evidence for the interest rate channel of monetary policy in Bangladesh. Our findings indicate that monetary policy shocks are important sources of fluctuations in the rate of interest, output and prices. Expansionary monetary policies are found to be harmful for achieving price stability in Bangladesh, as they not only increase the prices permanently, but also make the price level more volatile. We also found the evidence of a long lasting effect of monetary policy on output, which suggests that contractionary policy measures may create sustained recession in Bangladesh.
ISBN 9780959180640
Language eng
Field of Research 140299 Applied Economics not elsewhere classified
HERDC Research category E1.1 Full written paper - refereed
ERA Research output type E Conference publication
Copyright notice ©2008, ACE
Persistent URL http://hdl.handle.net/10536/DRO/DU:30022955

Document type: Conference Paper
Collection: School of Accounting, Economics and Finance
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Created: Sun, 07 Feb 2010, 20:39:41 EST by Omar Bashar

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