An aggregate private expenditure function for the Bangladesh economy

Abstract

This paper specifies and estimates an aggregate private expenditure function for Bangladesh for the period 1974:1-1985:4. It is specified on the basis of a monetary approach, where the level of private expenditure depends not only on the level of real permanent disposable income but also on a variable which measures the extent of disequilibrium in the real money market. The regression results suggest that the long-run income elasticity of private expenditure is around 0.765, which is lower than unity, a fact which induces a decline in the ratio of private expenditure to income as income increases. The adjustment coefficient to monetary disequilibrium indicates that in the long run around 32% of excess money supply is reflected in an increase in private expenditure, while the rest is mainly used for accumulation of assets.