Journal of Economics and Business

ISSN 2615-3726 (Online)

ISSN 2621-5667 (Print)

Published: 19 October 2020

Cyclical Fluctuation, Growth, and Stabilization: An Empirical Investigation of Dual Policy Objectives in Bangladesh

Sakil Ahmmed, Jonaed

South Asian Network on Economic Modeling, Bangladesh

Download Full-Text Pdf

10.31014/aior.1992.03.04.282

Pages: 1304-1315

Keywords: Cyclical Behavior, Fiscal Policy, Monetary Policy, Macroeconomics, Business Cycle, Cointegration, VECM, Granger Causality, Block Exogeneity

Abstract

In conventional economics, two types of macroeconomic policy i.e. fiscal policy and monetary policy are used to streamline the business cycle. This paper has examined the cyclical behavior of these variables over the business cycle of Bangladesh. The objective of this examination is to show whether policies (fiscal policy and monetary policy) in Bangladesh are taken with a motive to stabilize the economy or only to promote economic growth. In other words, it has examined whether the policies in Bangladesh are procyclical or countercyclical or acyclical. Hodrick Prescott (HP) filter has been used to separate the cyclical component of considered variables. Both correlation and regression-based analysis have provided that in Bangladesh government expenditure and interest rates behave procyclically, but money supply behaves acyclically over the business cycle. Besides, this paper has tried to identify the long-term as well as the short-term relationship between real GDP and the macroeconomic policy variables with the help of the Johansen cointegration test, vector error correction model (VECM), and block exogeneity Wald test. Through these analyses, this study has found that fiscal policy has a significant impact on GDP growth both in the short-run and long-run. In the case of monetary policy, although the interest rate has an impact on real output both in the short-run and long-run, the money supply has neither a short-run nor long-run effect on output growth.

References

  1. Adefeso , H. A., & Mobolaji, H. I. (2010). The  fiscal-monetary policy and economic growth in Nigeria: Further empirical  evidence. Pakistan Journal of Social Sciences.

  2. Ahumada, H., & Garegnani, M. L.  (1999). Hodrick-Prescott filter in practice. In IV Jornadas de Economía  Monetaria e Internacional .

  3. Al-Majali , A. A., & Al-Assaf,  G. I. (2014). Long-run and short-run relationship between stock market index  and main macroeconomic variables performance in Jordan. European Scientific  Journal.

  4. Brüggemann, R. (2006). Sources of  German unemployment: a structural vector error correction analysis. Empirical  Economics, 409-431.

  5. Chowdhury, A. R. (1996). Monetary  and fiscal impacts on economic activities in Bangladesh: A note. The  Bangladesh Development Studies, 101-106.

  6. Friedman, M. (1989). Quantity theory  of money. In Money. Palgrave Macmillan, London, 1-40.

  7. Hodrick , R., & Prescott, E.  (1996). Post-War US business cycles: a descriptive empirical investigation. Mark  Watson, federal reserve bank of Chicago.

  8. Karim, M. S. (2019). An Empirical  Evaluation of Monetary and Fiscal Policy Effects in Bangladesh. 47-85.

  9. Khan, N. S. (2011). Cyclical  Behaviour of Macroeconomic Policies and Capital Flows: A Study of Asian  Countries. The Bangladesh Development Studies, 47-85.

  10. Klein, L. R. (1950). The  keynesian revolution. London: Macmillan & Co. Ltd.

  11. Lucas Jr, R. E. (1997).  Understanding business cycles. In Carnegie-Rochester conference series on  public policy.

  12. Maysami, R. C., & Koh, T. S.  (2000). Vector error correction model of the Singapore stock market. 9(1),  79-96.

  13. Ministry of finance. (2020, 9). Budget.  Retrieved from Fiance division, Ministry of finance:  https://mof.gov.bd/site/view/budget_mof/%E0%A7%A8%E0%A7%A6%E0%A7%A8%E0%A7%A6-%E0%A7%A8%E0%A7%A7/

  14. Naser, H. (2015). Analysing the  long-run relationship among oil market, nuclear energy consumption, and  economic growth: An evidence from emerging economies. Energy, 421-434.

  15. Rahman, M. H. (2005). Relative  effectiveness of monetary and fiscal policies on output growth in Bangladesh:  A VAR approach. Policy Analysis Unit Bangladesh Working Paper WP0601.

  16. Razzak, W. (1997). The  Hodrick-Prescott technique: A smoother versus a filter: An application to New  Zealand GDP. Economics Letters, 163-168.

  17. Sayan, S. (2006). Business cycles  and workers' remittances: How do migrant workers respond to cyclical movements  of GDP at home? International Monetary Fund.

  18. Stern, D. I. (2000). A multivariate  cointegration analysis of the role of energy in the US macroeconomy. nergy  economics, 22(2), 267-283.

  19. Taslim, M. A. (2001). Monetary  policy and monetary programming in Bangladesh. The Bangladesh Development  Studies, 81-99.

  20. The world Bank. (2020, 09 11). World  Development Indicators. Retrieved from DataBank: https://databank.worldbank.org/source/world-development-indicators

About Us

The Asian Institute of Research is an online and open-access platform to publish recent research and articles of scholars worldwide. Founded in 2018 and based in Indonesia, the Institute serves as a platform for academics, educators, scholars, and students from Asia and around the world, to connect with one another. The Institute disseminates research that is proven or predicted to be of significant influence for the general public.

Stay Connected

  • Instagram - Black Circle
  • Facebook - Black Circle
  • LinkedIn - Black Circle

Contact Us

Please send all inquiries to the email:

editorial@asianinstituteofresearch.org

Business Address:

5th Floor, Kavling 507, Fajar Graha Pena Tower, Jl. Urip Sumohardjo No.20, Makassar, Indonesia 90234

Copyright © 2018 The Asian Institute of Research. All rights reserved