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Does the central bank contribute to the political monetary cycles in Bangladesh?

Author

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  • Mohammad Abdul Munim Joarder

    () (Curtin University
    Shahjalal University of Science and Technology)

  • A. K. M. Nurul Hossain

    (Shahjalal University of Science and Technology)

  • Monir Uddin Ahmed

    (Shahjalal University of Science and Technology)

Abstract

Abstract This study aims to explore the impact of elections on the inflationary process in Bangladesh i.e., to observe whether elections have any influence on monetary variables like money supply, exchanges rate and thus inflation. We used quarterly data as the incumbent in Bangladesh must give a maximum of 3 months’ time to the caretaker government to accomplish the election. Our full ARDL estimation suggested that an appreciation of the exchange rate just before the election reduced inflation significantly and an effective way of incumbent’s to gain popularity. We found that current inflation was positively associated (though not significantly) with the previous quarter’s money supply measured by M1. The incumbent took policies to reduce the inflation during election period as voters place more importance in the recent history. We find evidence of political monetary cycles in Bangladesh. Bangladesh Bank’s independence should be given priority so that it can withstand political pressure to stimulate the economy before elections or finance election-related increases in government spending.

Suggested Citation

  • Mohammad Abdul Munim Joarder & A. K. M. Nurul Hossain & Monir Uddin Ahmed, 2016. "Does the central bank contribute to the political monetary cycles in Bangladesh?," Economic Change and Restructuring, Springer, vol. 49(4), pages 365-394, November.
  • Handle: RePEc:kap:ecopln:v:49:y:2016:i:4:d:10.1007_s10644-015-9179-1
    DOI: 10.1007/s10644-015-9179-1
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