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Impact of Financial Development and Globalization on Inflation: The Role of Remittance and Economic Growth in Bangladesh

  • Satti, Saqlain Latif
  • Shahbaz, Muhammad
  • Mujahid, Nooreen
  • Ali, Amjad

The present study investigates the impact of financial development and globalization on inflation by incorporating foreign remittances and economic growth in inflation function in case of Bangladesh. The study covers the period of 1976Q1-2012Q4. We have applied structural break unit root test to examine integrating properties of the variables. The long run relationship between the variables is examined by applying newly developed cointegration approach by Bayer and Hanck, (2013) accommodating structural breaks in the series. Our results confirm the presence of cointegration between the variables in the presence of structural breaks. We find that financial development increases inflation. Globalization stimulates inflation. Economic growth declines inflation but foreign remittances raises it. The causality analysis reveals the bidirectional causality between financial development and inflation. The feedback effect exists between economic growth and inflation and, same is true for financial development and economic growth. Foreign remittances Granger cause inflation and inflation Granger cause foreign remittances.

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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 51675.

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Date of creation: 13 Nov 2013
Date of revision: 21 Nov 2013
Handle: RePEc:pra:mprapa:51675
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  1. Nigel Pain & Isabell Koske & Marte Sollie, 2006. "Globalisation and Inflation in the OECD Economies," OECD Economics Department Working Papers 524, OECD Publishing.
  2. David Romer, 1991. "Openness and Inflation: Theory and Evidence," NBER Working Papers 3936, National Bureau of Economic Research, Inc.
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  17. Paresh Kumar Narayan & Seema Narayan & Sagarika Mishra, 2011. "Do Remittances Induce Inflation? Fresh Evidence from Developing Countries," Southern Economic Journal, Southern Economic Association, vol. 77(4), pages 914-933, April.
  18. Robert Mundell, 1963. "Inflation and Real Interest," Journal of Political Economy, University of Chicago Press, vol. 71, pages 280.
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