Abstract:
Abstract: The study analyzed the impact of exchange rate, money supply, interest
rate and government expenditure on inflation of Bangladesh by using time series
data from 1976-2010 by employing Bound Testing approach. The analysis
demonstrates that in the long-run, exchange rate has negative effect on inflation,
money supply and interest rate have no significant effect on inflation, and
government expenditure has positive effect on inflation. While in the short-run, the
results indicate directional causality taking inflation as dependent variable with
other macro economic variables like exchange rate, money supply, interest rate and
government expenditure. It is manifest that inflation is sensitive to changes both
interest rate and government expenditure. Therefore, the government should realise
effective macro-economic policies. The policy implication is that in Bangladesh to
lessen inflation momentum the government will have to pursue a monetary and fiscal
policy which matches with the actual scenario of real sectors and monetary sectors.
