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Real Exchange Rate Behaviour and Exchange Rate Misalignments in Bangladesh

Author

Listed:
  • Rahman, A. K. M. Atiqur

    (Assistant Professor, Department of Economics, North South University, Bangladesh)

  • Basher , Syed Abul

    (Graduate Student, Department of Economics, York University, Canada)

Abstract

The paper adopts a single equation approach to examine the real exchange rate behaviour and exchange rate misalignment in Bangladesh. The paper finds that real exchange rate and the macroeconomic fundamentals affecting real exchange rate form a cointegrating vector. It observes that trade liberalization and increase in debt service burden result in a real depreciation of currency; while increase in capital inflow, improvement in terms of trade, and increase in government consumption of non-tradable result in a real appreciation of currency. Nominal devaluation has been able to partly retain its effect to have a real devaluation in the short run. Estimation of long run equilibrium real exchange rate reveals that our currency was considerably overvalued until late 1980s. However, real exchange rate broadly was in equilibrium during the 1990s.

Suggested Citation

  • Rahman, A. K. M. Atiqur & Basher , Syed Abul, 2001. "Real Exchange Rate Behaviour and Exchange Rate Misalignments in Bangladesh," Bangladesh Development Studies, Bangladesh Institute of Development Studies (BIDS), vol. 27(2), pages 69-93, June.
    • Handle: RePEc:ris:badest:0415
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    Citations

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    Cited by:

    1. Cheng, Fuzhi & Orden, David, 2005. "Exchange Rate Misalignment and Its Effects on Agricultural Producer Support Estimates: Empirical Evidence from India and China," 2005 Annual meeting, July 24-27, Providence, RI 19121, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
    2. Omotosho, Babatunde S., 2015. "Is Real Exchange Rate Misalignment a Leading Indicator of Currency Crises in Nigeria?," MPRA Paper 98353, University Library of Munich, Germany.
    3. Cheng, Fuzhi & Orden, David, 2005. "Exchange rate misalignment and its effects on agricultural producer support estimates," MTID discussion papers 81, International Food Policy Research Institute (IFPRI).
    4. Kiptui, Moses C. & Ndirangu, Lydia, 2015. "Determinants of Equilibrium Real Exchange Rate and its Misalignment in Kenya: A Behavioral Equilibrium Exchange Rate Approach," MPRA Paper 70542, University Library of Munich, Germany, revised 06 Apr 2016.
    5. Sajid Ali, 2016. "How does Interest rate effect Exchange rate of Pakistan. Evidence of ARDL Bound Testing Approach," Journal of Finance and Economics Research, Geist Science, Iqra University, Faculty of Business Administration, vol. 1(2), pages 119-133, October.

    More about this item

    Keywords

    Real exchange rates; Equilibrium exchange rates; Foreign exchange rates; Sustainable economies; Imports; Currency; Terms of trade; Development studies; Debt service; Gross domestic product;
    All these keywords.

    JEL classification:

    • A10 - General Economics and Teaching - - General Economics - - - General

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