Relationship between reserve money and economic growth in Bangladesh: an empirical analysis using the autoregressive distributed lag (ARDL) approach

This study uses the Autoregressive Distributed Lag (ARDL) method to examine the relationship between reserve money and economic growth in Bangladesh. The analysis aims to provide insights into the dynamics between reserve money and Gross Domestic Product (GDP) and to evaluate the efficiency of monetary policy in stimulating economic activity. The research employs time series data spanning the years 1991–2021 from the Major Economic Trends of Bangladesh Bank. The study considers GDP as proxy of economic growth, which is dependent variable and Reserve Money as proxy of money supply, which is independent variable. The ARDL model is utilized to estimate the short-term and long-term relationships between reserve money and GDP, while diagnostic tests are conducted to ensure the robustness of the model. Co-integration analysis is performed to examine the existence of a long-term equilibrium relationship between the variables. The findings reveal significant insights into the relationship between reserve money and economic growth in Bangladesh. The study highlights the positive impact of reserve money on GDP, emphasizing the role of monetary policy in stimulating economic activity. Moreover, the analysis underscores the importance of maintaining stability in the monetary system to foster sustainable economic growth. The findings offer guidance for formulating effective monetary policies aimed at promoting economic growth and stability in the country.