Major Macroeconomic Variables Research Articles

A Study on the Effect of Housing Financial Regulation Policy on Apartment Housing Prices

정부는 가계부채 문제해결과 더불어 주택가격안정을 목적으로 다양한 주택금융규제로 주택시장에 개입하고 있으나, 주택금융규제의 정책효과는 가계부채증가 억제나 주택가격안정과 같은 정책 목표를 달성하지 못하는 경우가 많다. 본 연구는 주택금융규제와 주택담보대출의 관계, 그리고 주택담보대출과 주택가격의 관계의 분석에 목적을 두었다. 즉, 주택금융규제 수단인 LTV, DTI, DSR의 주택담보대출 조절 효과를 개입ARIMA모형으로 분석하고, 주택담보대출이 주택가격에 미치는 영향을 VEC모형으로 분석함으로써, 규제정책의 유효성을 평가해보고, 가계부채 억제와 주택가격 안정화에 효과적인 주택금융규제 정책에 대한 시사점을 제시하고자 하였다. 분석 결과, 주택금융규제 수단인 LTV, DTI, DSR 규제가 동시에 강화의 방향으로 사용되었을 때에만 개입 효과가 발생하였으며, 주요거시경제변수 중 공동주택가격에 미치는 영향은 소비자물가지수(CPI), 종합주가지수(KOSPI), 광의통화량(M2) 순이었고, 주택담보대출의 설명력은 기간이 경과 할수록 설명력이 증가하였으나 상대적으로 매우 낮은 수준이었다. 그러므로 단기적인 주택가격 조정 목적으로서 주택금융규제 정책의 한계는 명확히 인식되어야 하며, 주택가격을 안정시키거나 부양하기 위한 수단으로 주택금융규제를 이용하는데에는 신중을 기해야 한다.1. CONTENTS (1) RESEARCH OBJECTIVES This study aims to provide a direction on the policy measures based on the result of empirical analysis on effectiveness of housing financial regulation policy to suppress mortgage loan and relation between mortgage loan and housing price. (2) RESEARCH METHOD ARIMA-Intervention analysis and VEC model analysis. (3) RESEARCH FINDINGS The intervention effect only occurred when the LTV, DTI, and DSR regulations, which are the means of housing finance regulation, were used simultaneously in the direction of strengthening. Among the major macroeconomic variables, the variables influencing the price of housing were the consumer price index(CPI), the composite stock price index(KOSPI), and the monetary volume(M2) in order, while the amount of housing mortgage loans’ explanatory power increased over the period, but it is relatively very low. 2. RESULTS Therefore, for the purpose of adjusting housing prices in the short term, the limitations of the housing finance regulation policy should be clearly recognized, and caution should be exercised in using it as a means to control housing prices.

Money Supply-Economic Growth Nexus: Evidence from a Landlocked Country

Background: There is special role of money in the economy due to its astonishing importance as change in the amount of it can have a significant effect on the major macroeconomic variables. Money supply is generally considered as policy-determined phenomenon. Like in all the nations, macroeconomic stability of Nepal also depends on the variation in the quantity of money.
 Objective: The principle objective of the study is to examine the impact of money supply on the economic growth of Nepal.
 Methodology: This study applies the ARDL approach to cointegration. Bounds test (F-version) has been carried out to determine the existence of long-run relationship between variables.
 Results: The empirical results pointed out that there is positive and significant long-term relationship between money supply and real economic growth in Nepal. Causality result reveals that there is unidirectional causality from money supply (M2) to Real GDP. The error correction term is found negative and statistically significant suggesting a correction of short-run disequilibrium within two and a half years.
 Conclusions: The study concludes that increase in the money supply helps to increase the real economic growth in Nepal. So, money supply and real GDP are associated in the long-run. 
 Implications: The implication of the study is that, real economic growth in Nepal can be achieved if Nepal Rastra Bank emphasized on monetary policy instruments which help to increase the flow of money supply both in the short and long run.

Macroeconomic Impact on the Exchange Rate of SAARC Countries

This paper is prepared with an intention to examine the impact of major macroeconomic variables which includes real interest rate, inflation rate, unemployment rate, GDP per capita, foreign direct investment inflows, export and import over the exchange rate of the countries who are the member of SAARC. To investigate extensively this research paper considers the economic data from 1971-2015 for the selected 5 members of SAARC which includes Bangladesh, India, Pakistan, Sri Lanka and Nepal. The findings from the OLS regression model indicates interest rate, inflation rate and unemployment rate is negatively and significantly related with exchange rate while GDP per capita and foreign direct investment net inflows have positive significant relationship with exchange rate. The results of this paper approve the null hypothesis for export and import which exhibits that import and export has no significant relationship with exchange rate.

Elimination of poverty by Islamic value based cooperative model

PurposeThe purpose of this paper examines how the challenge of poverty can be effectively addressed by broadly adopting Islamic value based cooperative model (IVCM) where the members come together to overcome and eventually eradicate the curse of poverty for themselves and for their future generations.Design/methodology/approachThe elimination of poverty by adopting IVCM and its impact on the cooperative members, as well as its effects on major macroeconomic variables, are examined on the theoretical ground by using the general equilibrium model of demand and supply-side variables.FindingsThe IVCM for the elimination of poverty reveals that the poverty gap can be eliminated through resource mobilization, as well as by creating new and additional income, wealth and resources through collaborative efforts. Through cooperative organizations based on Islamic values and principles, eventually, the entire poverty pool can enjoy income-earning opportunities through employment or self-employment, as well as promoting skills and education, leading to breaking the vicious cycle of poverty.Originality/valueCooperatives in general and Islamic cooperatives, in particular, are not new in the discourse about poverty. Indeed, there are cooperatives throughout the Muslim world and beyond and there are many studies related to cooperatives and their role in development. However, this might be the first theoretical contribution that models the role and impact of cooperatives in a macroeconomic framework, and thus, advances the scientific repertoire of knowledge and understanding about the related discourse by developing a rigorous mathematical model.

Sustainability efficiency and carbon inequality of the Chinese transportation system: A Robust Bayesian Stochastic Frontier Analysis

This study focuses on the sustainability efficiency of the Chinese transportation system by investigating the relationship between CO2 emission levels and the respective freight and passenger turnovers for each transportation mode from January 1999 to December 2017. A novel Robust Bayesian Stochastic Frontier Analysis (RBSFA) is developed by taking carbon inequality into account. In this model, the aggregated variance/covariance matrix for the three classical distributional assumptions of the inefficiency term—Gamma, Exponential, and Half-Normal—is minimized, yielding lower Deviance Information Criteria when compared to each classical assumption separately. Results are controlled for the impact of major macro-economic variables related to fiscal policy, monetary policy, inflationary pressure, and economic activity. Results indicate that the Chinese transportation system shows high sustainability efficiency with relatively small random fluctuations explained by macro-economic policies. Waterway, railway, and roadway transportation modes improved sustainability efficiency of freight traffic while only the railway transportation mode improved sustainability efficiency of passenger traffic. However, the air transportation mode decreased sustainability efficiency of both freight and passenger traffic. The present research helps in reaching governmental policies based not only on the internal dynamics of carbon inequality among different transportation modes, but also in terms of macro-economic impacts on the Chinese transportation sector.

Qard-al-Hasan-based monetary policy and the role of the central bank as the lender of last resort

PurposeThis paper aims to examine how a central bank (CB) can act as a lender of last resort (LOLR) for both Islamic and conventional interest-based banks by pursuing a Qard-al-Hasan (QH)-based monetary policy (MP).Design/methodology/approachThe role of the CB as LOLR under QH-based MP and its effects on major macroeconomic variables, including deposits, loan creation and aggregate expenditures, are examined on theoretical grounds by using the aggregate output and aggregate expenditure model under the framework of Islamic MP.FindingsWhen the CB acts as LOLR by pursuing QH-based MP, it automatically empowers Islamic banks (IBs) by providing access to borrowing funds from the CB on a QH basis. As a result, IBs will not be required to hold billions of dollars as liquid assets against liquidity risks. Thus, the lending capacity of IBs will increase and deposit expansion, loan creation and aggregate expenditures in the economy will all expand. This will in turn increase real GDP and employment while reducing the unemployment rate.Originality/valueThis is the first paper to analyze CBs acting as LOLR for both IBs and conventional interest-based banks by pursuing a QH-based MP, thus providing equal opportunities and equal access to borrowing facilities from the CB, along with equal partnership and fair competition for all and absolutely no discrimination to anyone. The LOLR service to all banks under QH-based MP will unveil a new horizon of opportunities where all financial institutions are expected to thrive. IBs will escape the constraints of the constant fear of liquidity risks and find a level-playing field.

Correlation of Macroeconomic Variables with Twin Deficit in Pakistan

The macroeconomic term Twin deficit is intensive of the study, which refers to a situation when in an economy both current account and the budget deficits are running at the correspondent time period. The core objective of the paper to investigate the relationship among the twin deficit hypothesis and major macroeconomic variables (Gross domestic product, Foreign Direct Investment, money supply, and interest rate). The results of the study founded through the secondary time series quarterly data from 1992-2018 of Pakistan’s economy. In the study to examine the stationary of data, applied Augmented Dickey-Fuller test and then used Vector Error Correction and Johansen co-integration Model to examine the short and long-term relationship among observed variables. The core finding of the study was that in short period along with long-run period Pakistan faced twin deficit situation due to positive association of current account deficit and Budget deficit. The outcomes of the study also indicate that GDP and FDI have positively long-run association while money supply and rate of interest have negatively long-run association with twin deficit. These results of the study are very helpful for the decision making and implementation of fiscal, monetary and export policies in Pakistan.

The World Economy at COVID-19 Quarantine: Contemporary Review

Like the previous pandemics, Coronavirus (COVID-19) pandemic is first and foremost a public health threat, but it is also, and increasingly, an economic threat. On the other hand, the economic impact of a pandemic may not be long- lasting if the underlying cause is contained quickly. Currently the world is seriously affected by COVID-19 outbreak. Considering the evolving nature of the situation, it is too early to estimate the full impact of COVID-19 on the world economy, but many articles have been published and made available to the public on the actual and potential economic consequences of COVID-19. Most of them consider the partial economic effects of COVID-19 on different economic perspectives. Therefore, the general objective of this contemporary review is to prepare the bases for future solution by collecting and analyzing the results of previous articles and contextualization’s of their needs. The result of the review depicts the significant actual and projected impacts of COVID-19 on major macro-economic variables like: economic growth, unemployment and poverty level. Besides, the review also reflects the sectoral impacts of COVID-19 on manufacturing, service, trade, tourism & aviation and education sectors of the world economy.

Fiscal-Monetary Policy Interactions and Macroeconomic Performance in a Small Open Economy: A GMM Approach

The study investigates the nature and the effect of fiscal and monetary policy interactions on major macroeconomic variables in a small open economy of Nigeria between 1981 and 2018. The paper employs the generalized method of moment as technique of analysis due to its potential to address the endogeneity issues among the explanatory variables. Findings from the study reveals that interest rate and government expenditure have significant effect on output and inflation. Also, the study finds that fiscal and monetary policy interact as strategic substitutes in Nigeria. This implies that when one policy authority pursues a contractionary measure, the other policymaker counteracts the action using an expansionary policy. It is also revealed that the effect of fiscal and monetary policy interactions on output and inflation is negative and significant. This implies that the two policies perform better when combined in achieving price stability and sustained output growth in the country. Based on the findings, there is a need for macroeconomic policy coordination in Nigeria to optimise the macroeconomic objectives of the country.

Impact of Islamic banking development and major macroeconomic variables on economic growth for Islamic countries: Evidence from panel smooth transition models

This study examines the nonlinear relationship between Islamic banking development, major macroeconomic variables and economic growth in Islamic countries. Using the panel smooth transition model, the results show a positive nonlinear relationship between Islamic banking development and economic growth. Moreover, the relationship between the macroeconomic variables and economic growth is asymmetric and regime-dependent. Further, by using the dynamic panel quantile model, we show that for many cases the Islamic banking variables lead economic growth across the quantiles. More specifically, foreign direct investment, oil production and inflation have a positive impact on economic growth during the normal financial development state, while government consumption, one-lag economic growth, terms of trade and financial development have a negative impact on economic growth for this state. The human capital index, education and the rule of law have an insignificant impact, regardless of the prevailing regime. The results for the separated oil-importing and oil-exporting economies are generally consistent with the combined sample regarding the Islamic banking development variables. As for the macro variables, they have a positive and significant (insignificant) effect on EG for the oil-importing (oil-exporting) economies for almost all models.

Dynamic spillover effects among tourism, economic growth and macro-finance risk factors

This paper examines spillover effects among international tourism growth, economic growth and a group of major macroeconomic and financial variables in the US. The empirical results show significant interactions among tourism growth, economic growth and the selected macro-finance factors, which have notably increased following the intensification of the global financial crisis in the fall of 2008. Furthermore, international tourism growth in the US appears as the main net receiver of spillovers from macroeconomic factors, thus providing evidence contrary to the empirical validity of the tourism-led growth hypothesis for the US. However, real GDP growth is identified as a net transmitter of spillovers to the tourism growth, which supports, at least partly, the economic-driven tourism growth hypothesis for the US. Novel to the literature, global economic policy uncertainty is the most important transmitter of shocks to US tourism growth, suggesting that heightened uncertainty about economic policy may have especially harmful effects on international tourism flows.

Combining a DSGE Model with Neural Networks for Forecasting Economic Variables

This paper examines the possibility of combining a DSGE model and neural networks to supplement each other, in order to yield a good performance in out-of-sample forecasts for economic variables. The novel neural-net structure of TDVAE (Temporal Difference Variational Auto-Encoder) proposed by Gregor et.al [2019] helps to realize this idea. TDVAE virtually replicates a stochastic state-space model through combinations of neural networks within the framework of variational Bayesian inference. Because a DSGE model provides theoretical restrictions on the state transition matrices of a state-space model, I choose to transplant those DSGE-oriented matrices into the probabilistic model of state transition in TDVAE. This TDVAE-DSGE approach certainly achieved the superior performance in the task of out-of-sample forecasts on Japan's major macroeconomic variables during 1Q/2011 and 4Q/2019.

Relationship among Economic Growth and other Macroeconomic Variables: A Study of Pakistan

This study is investigating the short run and long run relationship among major macroeconomic variables and economic growth for the economy of Pakistan during 2000 - 2015. Autoregressive distributed lag (ARDL) model and bounds test have been applied to estimate the short run and long run relationship between GDP and other major macroeconomic variables like, labour force, rate of capital formation, money supply, inflation rate, trade rate, foreign direct investment (FDI) and unemployment. ARDL model indicates significant relationship between labour force, FDI and unemployment economic growth, in the long run, at 1% and 5% level. Keywords: Macroeconomic variables; capital formation; money supply; inflation; trade; FDI; unemployment; economic growth; ARDL model. JEL Code : O1; O4; F43. DOI : 10.7176/JRDM/54-07 Publication date : April 30 th 2019

Poverty Menace and Social Economic Nexus in Nigeria: A Bound Test Approach

Nigeria has recorded variations in major macroeconomic variables since independence. Growth episodes over the years though encouraging put has not translated to improvement in poverty incidence. The rate of poverty in the nation has out-grown population growth, hence, this study seeks to relate various sectors of the economy to the perturbing poverty level in the nation with emphasis on the social sectors in which health and education play integral roles. This study examines poverty and social economic mix in Nigeria with the objectives of ascertaining the partial impacts of productivity (as a measure of health outcome), public social expenditures, agricultural output, manufacturing output and infrastructural development on poverty incidence, the study collected secondary annual time series data spanning 37 years from 1981 to 2017 on poverty index (PVTI), productivity due to good health (HP) and other explanatory variables as earlier identified. The pre-estimation techniques adopted include descriptive statistics, Phillips-Perron stationarity test and bounds test to co-integration. The preliminary result reveals that the variables in the model have long run relationship. The parameters of the model were estimated using the ARDL technique and the study found that productivity due to good health (HP) has significant effect on poverty reduction, as public social expenditures, current period’s agricultural output and previous period manufacturing output have similar effects but not statistically significant, however, infrastructural development and current manufacturing output have significant positive impact on poverty incidence in the country. On the basis of our empirical revelation, the study recommends that government should adopt multi-sectoral and big push development approaches with priority on employees’ productivity through free health care programmes for the unemployed, quality health insurance scheme for the employed, free education for children of the poor and unemployed, and that investment in critical infrastructures such as roads, rail, energy and storage facilities that promote agriculture and manufacturing outputs be improved upon if poverty is to be decisively tackled in Nigeria.

Bilateral FDI flows in four major Asian economies: a gravity model analysis

PurposeThe purpose of this paper is to examine the determinants of foreign direct investment (FDI) flows from some leading developed countries (the USA, Japan, Germany, the Netherlands, the UK and France) into major four Asian economies (China, Korea, India and Singapore).Design/methodology/approachUsing one basic and four augmented versions of gravity model technique, the authors tried to examine the determinants of bilateral FDI flows in four major Asian economies. The study used World Development Indicators, CEPII, KOF and Heritage Foundation data for period 2001–2012.FindingsThe results revealed that besides the market size for host and source country, other criteria such as distance, common language and common border also influence foreign investors. Other macroeconomic factors such as inflation rate and real interest rate are among the key factors that attract more FDI. In addition to economic factors, institutional and infrastructural factors such as telecommunication, degree of openness, index of globalisation and index of economic freedom also stimulate the international investors from the developed world to the major Asian countries.Research limitations/implicationsIt is altogether possible that only a set of home country specific characteristics or host country specific characteristics does not matter when determining FDI. Most empirical studies using indices such as the index of globalisation and economic freedom are subject to certain methodological limitations such as model selection, parameter heterogeneity, outliers and moral hazard.Practical implicationsMore distance between the host and source country would result in less FDI flows due to more managerial and raw material supply chain cost. Similarly, more gross domestic product (GDP) and per capita income (PCI) are leading to more FDI flows into Asian economics. Therefore, major Asian economies should frame their economic policies in such a manner where these counties can strengthen their GDP as well as PCI. Furthermore, above countries should open its economy more and more for better FDI flows as it seems that economic globalisation and economic freedom are major determinants of bilateral FDI flows. The negative impact of inflation and interest rate should be controlled.Social implicationsFrom policy perspective, higher scores of economic, social and political globalisation also attract high FDI to the host country. On the same line higher scores in economic freedom mean that less restrictions in terms of economic policies and the policy environment are conducive for free trade and resource transfers. Higher scores in trade freedom, investment freedom and freedom from corruptions also show more developed and conducive policy environment. In the same reasoning higher scores in the composite index of economic freedom which takes information from trade freedom, investment freedom and freedom from corruption and others also encourage flow of FDI in to the host country.Originality/valueThis is the first paper which combines the globalisation index, economic freedom index and distance along with some major macroeconomic variables.

Modeling the Impact of Political Risk Components on Major Macroeconomic Variables

The risks of the political conditions prevailing in an economy are found to have a significant impact on its stock market. Such political risks can distort the entire economy. This study investigated the impact of political risk on major macroeconomic variables which are the indicators of growth in any economy by considering the various components of political risk as given by World Bank’s worldwide governance indicators. Using a panel data approach, it modeled the major macroeconomic variables of eleven emerging and frontier Asian economies with various components of political risk. The study found that irrespective of the inter-linkages among different macroeconomic variables, they were not affected by the same political risk components. Most importantly, it revealed that GDP did not respond to any of the political risk components, whereas the exchange rate was found to be affected by all the political risk components. The study also found that FDI, inflation, and real interest rate were affected by one or more political risk components.

Forecasting Inflation: The Predictive Ability and Stability of Financial Variables

Forecasting major macroeconomic variables has been a subject of key interest for many academicians and professionals over the past many years. This study examines the predictive ability of different financial and non-financial variables in forecasting inflation of Norway, Sweden and Finland. Using quarterly data from 1984 to 2013, the study finds that some variables provide better forecasting performance relative to the simple autoregressive benchmark model in out-of-sample forecasts. However, the performances of the predictors are not stable over time and across countries; and no individual variable produces forecast that is significantly different from the forecast generated by the benchmark model.

Effect of urban tourist satisfaction on urban macroeconomics in China: A spatial panel econometric analysis with a spatial Durbin model

Tourist satisfaction has always been a crucial research issue in the tourism economy. This paper utilizes the Spatial Durbin Model (SDM) to analyze the impact of urban tourism satisfaction on urban macroeconomics from a macro perspective, using quarterly data on tourist satisfaction in 35 large and medium-sized cities along with major urban macroeconomic variables. This study is quite distinct from previous research that focused on constructing a tourist satisfaction index and analyzing the influence factors of tourism satisfaction from the perspective of the micro-level internal composition of tourism. The empirical results show: Firstly, in respect of the impact of urban tourists' satisfaction on the GDP income of cities, the SDM and the SDM with a lagged first-order dependent variable (SDM_dlag) show that the short-term and long-term indirect effects of log-tourist satisfaction are significantly positive, indicating that city satisfaction has a significant positive spatial spillover effect on GDP growth in other cities; Secondly, in respect of the influence of urban tourist satisfaction on the cost of urban life in the SDM, the long-term direct and indirect effects of logarithmic satisfaction are significantly positive, implying, in the long run, that tourist satisfaction has a positive intraregional spillover effect and spatial spillover effect on urban living costs; Finally, the SDM_dlag for the regression of urban tourist satisfaction on the cost of urban daily life shows that the short-run direct and indirect effects of city tourist satisfaction are significantly negative, indicating that tourist satisfaction has intra-regional and spatial spillover effects, and its rise will reduce the cost of living expenses in local and other cities in the short term. Overall, we have further elucidated the role of different levels of urban tourist satisfaction in city macroeconomics from the spatial dimension, thereby enriching the existing research on tourist satisfaction to some certain extent.

The effectiveness of Qard-al-Hasan (interest free loan) as a tool of monetary policy

PurposeThis paper aims to investigate the macroeconomic effects of Qard-al-Hasan (QH) as a tool of monetary policy (MP) and its effectiveness in achieving full employment and price stability in the economy.Design/methodology/approachQH-based MP and its effects on major macroeconomic variables are examined on theoretical ground by using the standard aggregate output and aggregate expenditure model within the framework of Islamic economic principles.FindingsQH-based MP positively influences real sectors of the economy and increases output, and the economy returns to full employment. QH provides the lowest possible borrowing costs across the economy and thus triggers rightward shift in aggregate supply curve and thus increases output and lowers price level. In addition, increase in output eliminates excess demand or shortages and thus maintains price stability. Furthermore, QH-based MP also increases exportable surplus and exports, decreases imports as well as increases inflow of funds and foreign currency reserves with the Central Bank and thus makes MP more effective.Research limitations/implicationsQH-based MP is usually expansionary MP, and as such, it can be argued that there is a probability that QH-based MP may lead to higher inflation rate. However, in this study, it has been shown with real world data in Table II, that 23 countries in Group 1 have pursued zero or negative interest rate policy and their experiences mitigate such probability.Originality/valueThis is, perhaps, the first paper that presents a complete model of QH as a tool of MP with fully explained transmission mechanism. This is new contribution in the literature of Islamic finance where theoretical model on QH is systematically developed and applied as an effective tool of MP in attaining full employment and price stability. This model of QH-based MP can unfold a new horizon of uninterrupted economic growth, full employment and price stability by increasing output and employment, as well as by eliminating excess demand or shortages.

A Forward Looking Small Semi-Structural Macroeconomic Model For Bangladesh

Small semi-structural models are suitable to explicate the monetary transmission mechanism by recognizing the interrelationships among major macroeconomic variables. This study presents a small semi-structural dynamic general equilibrium (DGE) New Keynesian model for Bangladesh to explore the dynamic interrelationships among major macroeconomic variables related to the transmission mechanism of monetary policy. Our DGE model comprises of four key behavioral equations – the aggregate demand (output), aggregate supply (inflation), interest rate and, the exchange rate. Using quarterly data over the sample period from 2006:Q3 to 2016:Q2, we have used Generalized Method of Moments estimation technique, which is useful for estimating forward-looking reaction functions on the basis of expected values for macroeconomic variables. The findings demonstrate that the model is inclusive enough to capture how the selected variables are interrelated. In most of the cases, the study finds significant and similar nature of interrelationships among the major macroeconomic variables as found by previous studies on Canada, Thailand, and South Africa. The model is also flexible enough in understanding shock propagation and conducting policy analyses. For Bangladesh, the policy transmission mechanism is found less efficient to control the monetary system (over 10 years to revert to steady state after the occurrence of shocks), while Canada, South Africa, and Thailand need 5 years, 10 years, and 10 years, respectively. This happens mainly due to the weak monetary policy which has two consequences. First, a small reaction parameter in the interest rate equation which means that the interest rate is only marginally adjusted to high inflation. Second, a small effect of monetary policy on the economy through the output and exchange rate equations. Most notably, in the exchange rate equation, the uncovered interest parity indicates a low coefficient. This might happen due to the absence of inflation targeting monetary policy in Bangladesh. A strong and quick policy response is required which could be achieved by implementing two major policy tasks: adoption of an inflation-targeting monetary policy, and full autonomy of Bangladesh Bank in both administrative and functional areas.