IDEAS home Printed from https://ideas.repec.org/a/beo/journl/v70y2025i246p37-67.html
   My bibliography  Save this article

Exchange Rate Pass-Through And Inflationary Dynamics In Bangladesh: A Cointegration And Vecm Analysis

Author

Listed:
  • Sazeda Akter
  • Jillur Rahman

Abstract

This paper analyses how deviations in nominal exchange rates have an effect on domestic prices – also known as exchange rate pass-through (ERPT) to inflation – in Bangladesh using time series data from 1989 to 2022 and employing the econometric methods of the Engle–Granger 2-step cointegration model and the Vector Error Correction (VECM) model. Understanding the extent of ERPT is important as it has consequences for domestic and export prices and exchange rate stability. This paper confirms the significant negative impact of escalating nominal exchange rates on inflation, i.e., devaluation of the taka leads to inflationary burdens within the internal economy. The VECM model shows that a one-per-cent decrease in the nominal exchange rate tends to raise inflation by 0.76 per cent, while the corresponding longrun impact as reflected through the Engle– Granger estimation is 0.89 per cent. These results bear important policy implications for managing prices and incentivising exports.

Suggested Citation

  • Sazeda Akter & Jillur Rahman, 2025. "Exchange Rate Pass-Through And Inflationary Dynamics In Bangladesh: A Cointegration And Vecm Analysis," Economic Annals, Faculty of Economics and Business, University of Belgrade, vol. 70(246), pages 37-67, July – Se.
    • Handle: RePEc:beo:journl:v:70:y:2025:i:246:p:37-67
    as

    Download full text from publisher

    File URL: http://www.ekof.bg.ac.rs/wp-content/uploads/2015/12/246-02.pdf
    Download Restriction: no
    ---><---

    More about this item

    Keywords

    ;
    ;
    ;
    ;
    ;

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • F31 - International Economics - - International Finance - - - Foreign Exchange

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:beo:journl:v:70:y:2025:i:246:p:37-67. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Goran Petrić (email available below). General contact details of provider: https://edirc.repec.org/data/efbeoyu.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.