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Inflation Targeting as the Monetary Policy Framework: Bangladesh Perspective

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Author Info

  • Mohammed SAIFUL ISLAM

    ()
    (University of Dundee, UK)

  • Mohammad Taslim UDDIN

    ()
    (University of Chittagong, Bangladesh)

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    Abstract

    Inflation targeting strategy has become a widely accepted monetary policy framework in many countries all over the world. Our study finds that the central bank of Bangladesh is neither inflation targeting nor does follow any other rule-guided monetary policy, rather the policy is formulated with substantial discretion under the guidelines of donor agencies. This paper provides the evidence that monetary sector of Bangladesh economy has gained considerable degree of maturity and fulfils a number of prerequisites to adopt inflation targeting strategy. Using data over 1980-2010 we estimate an error correction model in order to examine if interest rate policy could fight the inflation. This is evident that deviation in inflation from target can be corrected via the changes in interest rate. Empirical findings jointly with few descriptive statistics provide strong evidence to recommend inflation targeting as the monetary policy strategy for Bangladesh.

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    Bibliographic Info

    Article provided by Faculty of Management, Academy of Economic Studies, Bucharest, Romania in its journal ECONOMIA seria MANAGEMENT / ECONOMY - MANAGEMENT series.

    Volume (Year): 14 (2011)
    Issue (Month): 1 (June)
    Pages: 106-119

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    Handle: RePEc:rom:econmn:v:14:y:2011:i:1:p:106-119

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    Related research

    Keywords: Bangladesh; Inflation Targeting; Monetary Policy.;

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    1. Schmidt-Hebbel, Klaus & Tapia, Matias, 2002. "Inflation targeting in Chile," The North American Journal of Economics and Finance, Elsevier, vol. 13(2), pages 125-146, August.
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