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Relationship between threshold level of inflation and economic growth in Bangladesh- a multivariate quadratic regression analysis

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  • Asaduzzaman, Md

Abstract

The main objective of this study is to empirically examine the relationship between inflation and economic growth in Bangladesh and to investigate the ongoing possible threshold effect. This study draws on diverse tables and charts, correlation matrices, pair-wise Granger Causality tests, ADRL (General to Specific Approach) test, and a quadratic regression equation estimated by OLS using time series annual data covering the sample period from 1980 to 2017. The results demonstrate that the relationship between inflation and GDP growth is non-linear with a subsistence of a breakpoint, which means the inverted U-shape curve. Moreover, the Granger Causality shows that economic growth does granger cause inflation. The empirical result indicates that when the inflation level reaches the threshold level at 7.84 percent then the economic growth is in peak position. This study proposed that the Bangladesh Bank should maintain the precautious and growth-friendly monetary policy structure by keeping inflation targeting below 7.84 percent, or else the growth might be held back.

Suggested Citation

  • Asaduzzaman, Md, 2021. "Relationship between threshold level of inflation and economic growth in Bangladesh- a multivariate quadratic regression analysis," MPRA Paper 110333, University Library of Munich, Germany, revised 02 Feb 2021.
    • Handle: RePEc:pra:mprapa:110333
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    References listed on IDEAS

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    More about this item

    Keywords

    Threshold Inflation; GDP Growth; Quadratic Regression Model; Bangladesh Economy;
    All these keywords.

    JEL classification:

    • C1 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General
    • C15 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Statistical Simulation Methods: General
    • C3 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables
    • 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
    • E0 - Macroeconomics and Monetary Economics - - General
    • E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • E6 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook
    • O4 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity
    • O42 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Monetary Growth Models
    • O47 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Empirical Studies of Economic Growth; Aggregate Productivity; Cross-Country Output Convergence

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