Determinants of Exchange Rate in Bangladesh: A Case Study (original) (raw)
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FACTORS AFFECTING THE DETERMINATION OF EXCHANGE RATE IN BANGLADESH
Journal of Commerce and Accounting Research, 2017
The present study has attempted to identify the factors affecting the determination of exchange rate in Bangladesh by taking into account the values of BDT in terms of US dollar. Sixteen macroeconomic variables have been selected to test their impact on exchange rate of BDT. Covering a period of 15 years from 1999 to 2013 and using correlation and simple least square regression methods, this study has found that government expenditure is the most important factor in the determination of the exchange rate. Among the other factors, broad money supply, gross capital formation, primary income payments, gross domestic product, external debt stock, and gross national income are also important. On the other hand, total reserve, current account balance and deposit rate are of moderate importance. Again, inflation, lending rate, net financial account, net capital account, foreign direct investment, and primary income receipts are among the least important factors. It has also been found that increase in lending rate and primary income receipts is expected to cause appreciation of BDT and increases in all other factors are expected to cause the depreciation of BDT in relation to US dollar.
The study has been conducted to analyze the determinants of exchange rates in Bangladesh economy for the period of 1990 to 2011 using simple single equation linear regression model (SELRM). Inflation rate, GDP growth rate, interest rate and current account balance is used as explanatory variable. These are the most important determinants of exchange rate, which have major impact on exchange rate. Our conclusion includes that inflation rate, GDP growth rate, interest rate and current account balance has positive impact on exchange rate and the major role played by GDP.
Factors Influencing Exchange Rate: An Empirical Evidence from Bangladesh
Global Journal of Management and Business, 2019
Literature effect of exchange rate fluctuations is caused by some macroeconomic variables but there have not enough study in this important field. Our purpose was to generalize the main factors behind exchange rate fluctuations of Bangladesh from 1987-2017. We used ADF and PP test for stationary analysis that is unit root test satisfied preconditions for Johansen co-integrating test. Correlation matrix shows the relationships of independent variables with dependent one and agreed with FMOLS test. We find no serial correlation in Q-statistics, LM and Heteroscedasticity test. Johansen co-integration test specifies that there are no co-integrating equations for long run relationship rather the relationship is short run. VAR model and Ganger causality test shows there is a significant effect of Remittance, GDP growth and International trade to Exchange rate fluctuations because R-squared values are more than 60%. Wald test supports the VAR model results by ensuring that there also joint effect of independent variables. Results from FMOLS test concluded that GDP growth and International trade positively affect exchange rate. Remittance has negative effect on exchange rate. Finally, we can say that rise in GDP growth and international trade, increase the exchange rate volatility but rise in Remittance reduces the exchange rate volatility. We found the relevance of this study with existing the literature in its related filed.
STRATEGIC DETERMINANTS AND STABILITY OF REAL EXCHANGE RATE IN BANGLADESH: 1976-2017
2019
The lesson has been accompanied to scrutinize the determinants of exchange rate In Bangladesh economy for the period from 1976 to 2017. The broad objectives of this study is to analyze what are the determinants of Real Exchange Rate and Stability scenario that touch the inflation rate and overall economy in Bangladesh since 1976 to 2017. Real Exchange Rate, Inflation Rate, Interest Rate and Income Level or Real GDP is used as clarifying variables. These are the utmost central factors of exchange rate which have a key influence on Real Exchange Rate. This study's inference includes how the Inflation Rate, Interest Rate and Income Level or Real GDP has impact on Real Exchange Rate. It is evident from the study found that still there have been long run relationship among real exchange rate, interest rate, inflation rate and real gross domestic product. Paper also shows that if interest rate, inflation rate and real GDP go down then at a time the real exchange rate goes down.
Impact of Exchange Rate Regime Change on the Value of Bangladesh Currency
Two distinctively different exchange rate regimes have been in place in Bangladesh -a fixed exchange rate regime from January 1972 -May 2003 and a floating exchange rate regime since June 2003. Since the change in regime, the value of Bangladesh currency 'Taka' has fallen by more than 20% against the US Dollar during a period when the US Dollar itself has been losing value. The objective of this paper is to analyze whether the exchange rate regime change in Bangladesh has had any significant impact on the value of its currency i.e. whether the regime change is associated with the loss in the value of Taka. The fact that during the fixed regime, Bangladesh pursued an active exchange rate policy as reflected by the policies of Bangladesh Bank during that period is what makes the question worth asking. In one way, this paper tests the efficiency of Bangladesh Bank in terms of pricing its currency during the fixed regime. In the process, the paper also tries to identify the variables that play important roles in determining the exchange rate of Taka. In order to provide context; the exchange rate system in Bangladesh -its past, its present; the causes of the change in the system and a comparative analysis of the systems have been briefly discussed.
2022
This paper mainly examines the effect of exchange rate on the price level and international trade of Bangladesh. Along with this, it also has studied how exchange rate is related to 12 economic and non-economic factors. This gives an in-depth idea about how the exchange rate of a country changes. This helps to infer to the conclusions in the paper. The discussions were made after carefully reading various publications written about Bangladesh and other nations. It was found in the study that despite Bangladesh's economy being based on the US dollar, exchange rate fluctuation does not significantly affect Bangladesh's export or import. Imports become more expensive after depreciation, which could result in price increases in the economy. The exchange rate and the rate of inflation were found to be indirectly correlated.
The Exchange Rate Determination in Bangladesh Does Purchas
In the situation of waning values of currencies following financial flu that swept the countries of the Far East and South East, the authors felt a need to analyze efficiency of exchange rate management system of Bangladesh. Defining the exchange rate, which reflects balance of payments position of a country, as the domestic price of a unit of foreign currency, the paper explains relevance of purchasing power parity theory propounding that changes in the exchange rate between two countries is equal to the ratio of inflation rate of them. From a system of pegging to one currency, over the last 26 years, Bangladesh has developed a regime of pegging exchange rate to a basket of currencies keeping in view the need for strengthening the country's competitiveness in international trade, improving the current account position and maintaining the stability of the value of taka. This is ensured through monitoring of purchasing power parity based Real Effective Exchange Rate index. The paper has used co-integration technique, a modem concept of econometrics, to examine the long term relationship among world and Bangladesh inflation rates and our exchange rate. The method is employed to comprehend whether purchasing power parity really holds in Bangladesh. Though our result assures a long term relationship among PPP and exchange rate characterizing appropriateness of our policy stance, it also indicates possibilities and necessity of a better accomplishment.
Effects of Exchange Rate Variation on Price Level and Output Growth in Bangladesh
Mediterranean Journal of Social Sciences, 2013
The paper empirically examines the impact of depreciation on domestic output growth and price level of Bangladesh. Exchange rate along with some other traditional factors like investment spending, bank credit, narrow and broad money and labor force have been taken into account to evaluate the influence of exchange rate fluctuation on economic growth and price level of Bangladesh. The macroeconomic time series variables are made stationary to employ regression techniques. The study finds that depreciation has an expansionary effect on output level and price level and the overall result is consistent with the view that depreciation leads to inflation fostering the output growth.Depreciation, which is essential to regain export competitiveness, should be handled pragmatically to uproot its adverse implication on long term economic growth of Bangladesh that might occur due to import contraction.
Causality Between Exchange Rate and Economic Growth in Bangladesh
European Scientific Journal, 2014
This paper attempts to examine the relationship between Exchange Rate (ER) and Economic Growth (EG) proxied by Real Gross Domestic Product (RGDP) in Bangladesh for a period of 41 years ranges from 1973 to 2013 by using time series econometric technique. The empirical results show that there is a significant positive correlation between ER and EG. The results also advocate the presence of long-run equilibrium relationship between ER and EG. This is evidenced from Granger's Causality Test that there is a bi-directional causality runs through ER to EG and EG to ER.
FACTORS AFFECTING THE FLUCTUATION IN EXCHANGE RATE OF THE BANGLADESH: A CO-INTEGRATION APPROACH
This paper adopts an econometric analysis of determinants of exchange rate for US Dollar in terms of Bangladeshi currency within the framework of monetary approach. Monthly data from January 1984 to April 2012 for Bangladesh relative to USA have been used to examine the long run and short run behavior of BDT/USD exchange rate. The paper finds that real exchange rate and the macroeconomic variables affecting real exchange rate forms a cointrigrating vector. Its observes that stock of money and increase in debt service burden results in a real depreciation of currency, while increasing foreign exchange reserve results in a real appreciation of currency. Moreover, Political instability has a significant negative effect on the value of domestic currency.