Abstract
It is important to know the future movement of economic variables for the planning and development of a country, Vector Error Correction (VEC) Model has been applied to disclose hidden long run as well as short-run patterns of the selected variables. ADF unit root testing procedure was applied to satisfy the conditions of applying the VEC Model. Using Johansen cointegration test long-run cointegration has been justified. But the VEC model reveals that long run significant causal relationship between the variables whereas there is no short-run causal relationship. The parameter was estimated using the OLS estimation technique. The validity of the model was confirmed by applying different quantitative approaches such as normality test, autocorrelation test, Portmanteau test, Unit root test, and various graphical approaches which suggested model selection and estimation were correct. The result of this present study may help Govt. agencies as well as planners to take an idea.
Highlights
OF THE STUDYThe inflation rate and the interest rate are the most important and key factors in the Bangladesh economy
The study is about an investigation of the relationship between the inflation rate and the interest rate based on the past data collected from the World Bank (WB) and quantifying the co-movement of these variables in the perspective of Bangladesh
This research involves the analysis of Real Interest Rate (RIR) and Inflation Rate (IR) during time period1980 to 2016
Summary
The inflation rate and the interest rate are the most important and key factors in the Bangladesh economy. The study is about an investigation of the relationship between the inflation rate and the interest rate based on the past data collected from the World Bank (WB) and quantifying the co-movement of these variables in the perspective of Bangladesh. Time series modeling especially Vector Auto Regression (VAR) is an effective tool to reveal the past and future movement of several interrelated economic variables. This specific study is very important for the inquiry of the connection between Real Interest Rat and Inflation Rate. The inflation rate can likewise be predicted by the public (Πt) It is shown a positive relationship between those two variables (Research Department, National Bank of Poland). It is necessary to see the relation is either the short run or the long run
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