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

Bashar, Omar H. M. N. 2011, The role of agregate demand and supply shocks in a low-income country : evidence from Bangladesh, The journal of developing areas, vol. 44, no. 2, Spring, pp. 243-264.

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Title The role of agregate demand and supply shocks in a low-income country : evidence from Bangladesh
Author(s) Bashar, Omar H. M. N.
Journal name The journal of developing areas
Volume number 44
Issue number 2
Season Spring
Start page 243
End page 264
Total pages 12
Publisher Tennessee State University College of Business
Place of publication Nashville, Tenn.
Publication date 2011
ISSN 0022-037X
1548-2278
Keyword(s) Aggregate Demand and Supply Shocks
Blanchard-Quah Decompositions
Monetary Policy
Bangladesh
Summary 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.
Language eng
Field of Research 140212 Macroeconomics (incl Monetary and Fiscal Theory)
140202 Economic Development and Growth
Socio Economic Objective 910103 Economic Growth
HERDC Research category C1 Refereed article in a scholarly journal
HERDC collection year 2010
Persistent URL http://hdl.handle.net/10536/DRO/DU:30030388

Document type: Journal Article
Collections: Faculty of Business and Law
School of Accounting, Economics and Finance
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