Mujeri, Mustafa K. and Shahiduzzaman, Md. and Islam, Md. Ezazul (2009) Measuring inflationary pressure in Bangladesh: the P‐Star approach. Working Paper. Bangladesh Bank, Policy Analysis Unit, Dhaka, Bangladesh.
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The paper estimates the P* model for the Bangladesh economy and tests its forecasting ability through generating recursive forecasts. The model puts together long run determinants of price level based on the classical quantity theory of money and short term changes in current inflation. The empirical results show that the model performs relatively well and contains additional information regarding future rates of inflation. The price and output gap models fare consistently better than the velocity gap model which brings out the importance of non‐monetary factors in explaining inflation dynamics in Bangladesh. The out of sample forecasts show that the price gap model performs better followed by the output gap model and the velocity gap model. With financial sector liberalization and reforms, it is likely that the scope for the P* model to play a more proactive role would be ramified in Bangladesh.
|Item Type:||Report (Working Paper)|
|Additional Information:||Copyright © 2009 by Bangladesh Bank. Working Paper Series: WP 0901. An electronic version of this paper is available at www.bangladeshbank.org.bd|
|Uncontrolled Keywords:||P* model, inflation, Bangladesh|
|Fields of Research (FOR2008):||14 Economics > 1402 Applied Economics > 140219 Welfare Economics|
14 Economics > 1401 Economic Theory > 140199 Economic Theory not elsewhere classified
|Subjects:||340000 Economics > 340100 Economic Theory > 340102 Macroeconomic Theory|
340000 Economics > 340200 Applied Economics
|Socio-Economic Objective (SEO2008):||UNSPECIFIED|
|Deposited On:||07 Oct 2010 09:58|
|Last Modified:||16 Nov 2011 11:41|
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