JBS Vol 22. Num 1. 2020 - Interrelations Among Broad Money Growth, Inflation, Inflation Volatility, and Industrial-Output Growth in Bangladesh: An Empirical Investigation with Monthly Data

This paper uses monthly data for Bangladesh over the period 1973M1−2019M7 to investigate the interrelations among broad money growth, inflation, inflation volatility, and industrial output growth. Statistical analyses provide evidence supporting feedback relations between inflation and inflation volatility. They further suggest that both inflation and inflation volatility maintain feedback relations with industrial output growth and its volatility. In order to understand these relations broadly, the paper econometrically investigates the effects of inflation and inflation volatility on industrial output growth and its volatility within the repressed financial system in Bangladesh. In doing so, the paper estimates two complementary structural vector autoregression (SVAR) models. The first model includes broad money growth, inflation, the real deposit rate of interest, the real effective exchange rate, and industrial-output growth. The second model comprises the volatilities of broad money growth, inflation, the real deposit rate of interest, the real effective exchange rate, and industrial-output growth. The empirical results obtained from these models confirm the expected interrelations among these variables.