Monetary Policy and Macro-Economy: An Empirical Study Based on Economic Statistics

Abstract

Like other central banks, Bangladesh Bank adopts monetary policy for controlling the supply of money as an instrument to accomplish the goals of general economic policy. The long term objective of monetary policy in Bangladesh is to ensure sustainable economic growth. The short term objectives are generally determined after a careful and pragmatic evaluation of the current economic condition of the country. This research article focuses on the association between monetary policy and GDP. Along with similar studies by various researchers, the ARDL Model analysis has been applied to test the hypothesis. Economic statistics of past 35 years of Bangladesh have been used to reach to the conclusion. The study shows significant relationship between interest rate and GDP in the long run. And the study also shows significant relationship between Money Supply (M2) and GDP in the long run but it shows insignificant relationship in the short run between monetary policy and GDP. It must be noted that this study did not consider other tools of monetary policy which can alter the impact of monetary policy on GDP. The findings from this research encourage further sophisticated research considering other factors to have more transparent outcomes.