Inflation
BANGLADESH RESEARCH PUBLICATIONS JOURNAL ISSN: 1998-2003, Volume: 8, Issue: 1, Page: 07-17, January - February, 2013
INFLATION BEHAVIOR: EVIDENCE FROM BANGLADESH
Mohammad Zoynul Abedin1*, Fahmida – E – Moula2 and Shahnaz Parvin1*
Mohammad Zoynul Abedin1*, Fahmida – E – Moula2 and Shahnaz Parvin (2013). Inflation Behavior: Evidence from Bangladesh. Bangladesh Res. Pub. J. 8(1): 07-17. Retrieve from http://www.bdresearchpublications.com/admin/journal/upload/1308102/1308102.pdf
Abstract
The rise in the inflation rate has prompted two views of the sources of higher inflation in Bangladesh. One is the cost-push inflation which is typically caused by supply shocks such as flood, draught and oil price hike. The other is the demand-pull inflation that occurs when the aggregate demand (AD) in an economy outpaces the aggregate supply (AS). This article has two objectives: first, it identifies the leading source of the current inflationary pressure in Bangladesh using economic data. Second, it argues that more aggressive concretionary monetary policy is needed to pull down the inflation rate. The results indicate to maintain price stability; the government must work on both economic and non-economic factors that have instigated the ongoing inflation. It would be important to address the sources underlying slow domestic demand and take steps to counter their adverse impacts. At the same time, the Bangladesh Bank needs to identify the factors contributing to monetary expansion, assess the extent of the problem, and design appropriate policy mix consistent with current situations.
Key words: Evidence and Inflation Behavior.
Introduction
Inflation has become a well-entrenched phenomenon in many countries. Somehow it seems that the general price level can only rise implying that there is an inflationary bias in society. Consensus has it that inflation is likely to impose considerable economic costs (Fischer and Modigliani, 1978). Types of costs are, for instance,
INFLATION BEHAVIOR: EVIDENCE FROM BANGLADESH
Mohammad Zoynul Abedin1*, Fahmida – E – Moula2 and Shahnaz Parvin1*
Mohammad Zoynul Abedin1*, Fahmida – E – Moula2 and Shahnaz Parvin (2013). Inflation Behavior: Evidence from Bangladesh. Bangladesh Res. Pub. J. 8(1): 07-17. Retrieve from http://www.bdresearchpublications.com/admin/journal/upload/1308102/1308102.pdf
Abstract
The rise in the inflation rate has prompted two views of the sources of higher inflation in Bangladesh. One is the cost-push inflation which is typically caused by supply shocks such as flood, draught and oil price hike. The other is the demand-pull inflation that occurs when the aggregate demand (AD) in an economy outpaces the aggregate supply (AS). This article has two objectives: first, it identifies the leading source of the current inflationary pressure in Bangladesh using economic data. Second, it argues that more aggressive concretionary monetary policy is needed to pull down the inflation rate. The results indicate to maintain price stability; the government must work on both economic and non-economic factors that have instigated the ongoing inflation. It would be important to address the sources underlying slow domestic demand and take steps to counter their adverse impacts. At the same time, the Bangladesh Bank needs to identify the factors contributing to monetary expansion, assess the extent of the problem, and design appropriate policy mix consistent with current situations.
Key words: Evidence and Inflation Behavior.
Introduction
Inflation has become a well-entrenched phenomenon in many countries. Somehow it seems that the general price level can only rise implying that there is an inflationary bias in society. Consensus has it that inflation is likely to impose considerable economic costs (Fischer and Modigliani, 1978). Types of costs are, for instance,
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