MONETARY POLICY DYNAMICS AND ECONOMIC PERFORMANCE IN BANGLADESH: AN ARIMA MODEL APPROACH

Abstract

This study delves into the impact of monetary policy on the economic performance of Bangladesh, utilizing data derived from audited annual reports of the Bangladesh Bank covering the years 2014 to 2022. The central focus of the analysis revolves around Gross Domestic Product (GDP) as the dependent variable, with money supply growth, real interest rate, exchange rate, inflation rate, and repo rate considered as independent variables. Employing two regression models, namely Ordinary Least Squares (OLS) and Autoregressive Integrated Moving Average (ARIMA), the research aims to explore the relationships among these variables. In the OLS regression model, significant associations are identified between GDP and real interest rates, inflation rate, and the repo rate. However, no statistically significant relationships are observed between GDP and money supply growth or the exchange rate. On the contrary, the ARIMA regression model indicates statistical significance for all variables, except the exchange rate, concerning their impact on GDP. These findings suggest that monetary policy plays a substantial role in shaping the economic growth of Bangladesh, with real interest rates, inflation rates, and repo rates exerting particular influence. The lack of a significant relationship between the exchange rate and GDP in the ARIMA model implies that other factors, potentially external to the country, may have a more dominant influence on exchange rate dynamics during the study period. This research contributes to a deeper understanding of the complex interplay between monetary policy and economic performance in Bangladesh, offering valuable insights for policymakers and stakeholders.