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Influence of Some Macroeconomic Variables on Inflation-An Econometric Enquiry

Received: 1 September 2016     Accepted: 8 March 2017     Published: 17 May 2017
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Abstract

The study analyzed the impact of exchange rate, money supply, interest rate and government expenditure on inflation of Bangladesh by using time series data from 1976-2010 by employing Bound Testing approach. The analysis demonstrates that in the long-run, rate of change of exchange rate has negative effect on inflation. Money supply and interest rate have no significant effect on inflation, and government expenditure has a positive effect on inflation. While in the short-run, the results indicate directional causality taking inflation as dependent variable with other macro-economic variables like exchange rate, money supply, interest rate and government expenditure. It is manifest that inflation is sensitive to changes both interest rate and government expenditure in the short run. Therefore, the government should realise effective macro-economic policies that is effective for economical progress in the short run. The policy implication is that in Bangladesh to lessen inflation momentum the government will have to pursue a monetary and fiscal policy which matches with the actual scenario of real sectors and monetary sectors.

Published in Journal of World Economic Research (Volume 6, Issue 3)
DOI 10.11648/j.jwer.20170603.11
Page(s) 27-33
Creative Commons

This is an Open Access article, distributed under the terms of the Creative Commons Attribution 4.0 International License (http://creativecommons.org/licenses/by/4.0/), which permits unrestricted use, distribution and reproduction in any medium or format, provided the original work is properly cited.

Copyright

Copyright © The Author(s), 2017. Published by Science Publishing Group

Keywords

ARDL, Bound Testing, Error Correcting Term, Exchange Rate, Govt. Expenditure Inflation, Interest Rate, Money Supply

References
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[3] Akibobola, T. O (2012)”The dynamics of money supply, exchange rate and inflation in Nigeria” Journal of Finance and banking, vol.2 no.4, pp117-141.
[4] Asogu, J. O. (1991)”An econometric Analysis of the nature and causes of Inflation in Nigeria” Economic and Financial Review, Vol.29, no.2.
[5] Aris, M. J. (1992) “Wage inflation” in current issues on Macroeconomics, London, Macmillan Education ltd.
[6] Batini, N. (2004) Achieving and Maintaining Price Stability in Nigeria, IM working paper, 04-97, Washington DC.
[7] Edwaikhide et al (1994) “Exchange rate, Money supply and Inflation in Nigeria: An Empirical Investigation” African Journal of Economic Policy, vol.2 Pp57-73.
[8] Eihner, A. S. (1973) “A theory of the determination of mark-up under oligopoly” Economic Journal, December 1973.
[9] Friedman, Milton (1963) Inflation: Causes and Consequences. New York: Asia Publishing House.
[10] Fuller, T. M. and Ikhide, (1998)’An Economic Analysis of Nigerian Consumer Price Index” Journal of Economics, vol.24 (2), Pp1-15.
[11] Goaecher, D. J. (1986) An introduction to Monetary Economic, London Financial Training Publication ltd.
[12] International Monetary Fund, 2007, Bangladesh: Selected Issues (IMF Country Report No. 07/230, June 2007), pp. 16-23.
[13] Jhingan, M. L. (2004) Monetary Economics, 6th ed. Vrinda Publications Ltd.
[14] Keynes, J. M. (1936) The General Theory of Employment, Interest and Money. Published for the Royal Economic Society by Macmillian Press ltd, London and Basingstoke.
[15] Mahamadu, B. and Philip, A. (2003) Monetary Growth, Exchange rates and Inflation in Ghana: An Error Correction Analysis, Working Paper, WO/BOG- 2003/05.
[16] Odusunya, I. A. and A. A. Atanda (2010): Analysis of inflation and its determinants in Nigeria, Pakistan Journal of Social Sciences, volume7, No.2 Pp97-100.
[17] Okpara and Nwoaha (2010) “Government Expenditure, Money supply, Prices and output Relationship in Nigeria: An Econometric Analysis” International Research Journal of Finance and Economic Issues54.
[18] Oruba, C. O. (2009) Inflation in Nigeria: Concept, Measurement and Control, Bullion,
[19] Central Bank of Nigeria, Vol.33 (1).
[20] Osakwe, J. O. (1983) Government Expenditure, Money supply and prices, 1970-1980, CBN Economic and Financial Review, vol.21, no.2.
[21] Oyejide, T. A. (1972) “Deficit Financing, Inflation and capital Formation: The analysiso the Nigerian economy, 1957-1970” NJESS, vol.14.
[22] Owoye, O. (2007) Money Targeting, Money Demand and Real GDP growth in Nigeria: Do rule Apply? Journal of Business and Public Affairs Vol.1 (2) Pp1-20.
[23] Pesaran, M. H., Y. Shin. & Smith R. (2001) “Bounds testing approaches to the analysis of level relationships”, Journal of Applied Econometrics, Vol. 16:289-326.
[24] Selialia, F. L. (1995) The Dynamics of Inflation in Lesotho, Unpublished M. A Thesis, University of College Dublin.
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  • APA Style

    Amit Kundu. (2017). Influence of Some Macroeconomic Variables on Inflation-An Econometric Enquiry. Journal of World Economic Research, 6(3), 27-33. https://doi.org/10.11648/j.jwer.20170603.11

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    ACS Style

    Amit Kundu. Influence of Some Macroeconomic Variables on Inflation-An Econometric Enquiry. J. World Econ. Res. 2017, 6(3), 27-33. doi: 10.11648/j.jwer.20170603.11

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    AMA Style

    Amit Kundu. Influence of Some Macroeconomic Variables on Inflation-An Econometric Enquiry. J World Econ Res. 2017;6(3):27-33. doi: 10.11648/j.jwer.20170603.11

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  • @article{10.11648/j.jwer.20170603.11,
      author = {Amit Kundu},
      title = {Influence of Some Macroeconomic Variables on Inflation-An Econometric Enquiry},
      journal = {Journal of World Economic Research},
      volume = {6},
      number = {3},
      pages = {27-33},
      doi = {10.11648/j.jwer.20170603.11},
      url = {https://doi.org/10.11648/j.jwer.20170603.11},
      eprint = {https://article.sciencepublishinggroup.com/pdf/10.11648.j.jwer.20170603.11},
      abstract = {The study analyzed the impact of exchange rate, money supply, interest rate and government expenditure on inflation of Bangladesh by using time series data from 1976-2010 by employing Bound Testing approach. The analysis demonstrates that in the long-run, rate of change of exchange rate has negative effect on inflation. Money supply and interest rate have no significant effect on inflation, and government expenditure has a positive effect on inflation. While in the short-run, the results indicate directional causality taking inflation as dependent variable with other macro-economic variables like exchange rate, money supply, interest rate and government expenditure. It is manifest that inflation is sensitive to changes both interest rate and government expenditure in the short run. Therefore, the government should realise effective macro-economic policies that is effective for economical progress in the short run. The policy implication is that in Bangladesh to lessen inflation momentum the government will have to pursue a monetary and fiscal policy which matches with the actual scenario of real sectors and monetary sectors.},
     year = {2017}
    }
    

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    T1  - Influence of Some Macroeconomic Variables on Inflation-An Econometric Enquiry
    AU  - Amit Kundu
    Y1  - 2017/05/17
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    UR  - https://doi.org/10.11648/j.jwer.20170603.11
    AB  - The study analyzed the impact of exchange rate, money supply, interest rate and government expenditure on inflation of Bangladesh by using time series data from 1976-2010 by employing Bound Testing approach. The analysis demonstrates that in the long-run, rate of change of exchange rate has negative effect on inflation. Money supply and interest rate have no significant effect on inflation, and government expenditure has a positive effect on inflation. While in the short-run, the results indicate directional causality taking inflation as dependent variable with other macro-economic variables like exchange rate, money supply, interest rate and government expenditure. It is manifest that inflation is sensitive to changes both interest rate and government expenditure in the short run. Therefore, the government should realise effective macro-economic policies that is effective for economical progress in the short run. The policy implication is that in Bangladesh to lessen inflation momentum the government will have to pursue a monetary and fiscal policy which matches with the actual scenario of real sectors and monetary sectors.
    VL  - 6
    IS  - 3
    ER  - 

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Author Information
  • Department of Economics, Mathabhanga College, Cooch Behar, India

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