Vol 24. Num 1. 2022. Article 2 - Has Monetary Targeting Remained an Appropriate Strategy of Monetary Policy for Price Stability

Akhand Akhtar Hossain

This paper investigates some monetary relations and models to determine the appropriateness of a moneybased monetary policy for Bangladesh's price stability. It considers broad money-demand function stability, the cointegral relation between broad money, real output, prices, interest rates, and exchange rates, and the linkage between broad money growth and the balance of payments under the de facto pegged exchange rate system. Monthly data from 1980M1 to 2019M7 is used to estimate these relations and models. Previous findings by the author (Hossain, 2015a) conclude that the monetary-targeting strategy of monetary policy is still suitable for Bangladesh in terms of monetary relations and model stability, while the country's monetary policy implementation is restricted under the de facto pegged exchange rate system. The empirical results of this paper, with updated monthly data, agree with those findings. However, this paper concludes that by maintaining the pegged exchange rate of Bangladesh taka against the US dollar, the central bank implemented an exchange rate policy that sacrifices the independence of monetary policy to achieve price stability. The resulting high, volatile, and persistent inflation, affects economic growth and its stability