Exchange Rate Management Under Floating Regime in Bangladesh: An Assessment

Abstract

This chapter analyzes the behavior of both nominal and real exchange rates of Bangladesh to assess the exchange rate management practices in Bangladesh, particularly, in the freely floating rate regime. It tries to characterize the de facto exchange rate regime. As part of explaining the behavior of nominal exchange rate, we estimate the exchange rate, market pressure and pass-through elasticities. The analysis suggests that the behavior of nominal exchange rate is not consistent with the behavior of floating exchange rate, rather it conforms to a tightly managed floating rate regime. The analysis in this chapter also points out some technical aspects of calculations of real effective exchange rate (REER) and monitoring of REER for prudent exchange rate management. Finally, this chapter provides some policy recommendations to prudently manage exchange rate under floating exchange rate regime.