Measuring inflationary pressure in Bangladesh: the P-star approach

Mujeri, Mustafa K. and Shahiduzzaman, Md. and Islam, Md. Ezazul (2009) Measuring inflationary pressure in Bangladesh: the P-star approach. Working Paper. Bangladesh Bank , Dhaka, Bangladesh. [Report]

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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.

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Item Type: Report (Working Paper)
Refereed: No
Item Status: Live Archive
Additional Information: Copyright © 2009 by Bangladesh Bank.
Faculty / Department / School: Historic - Faculty of Business - School of Accounting, Economics and Finance
Date Deposited: 06 Oct 2010 23:58
Last Modified: 03 Nov 2014 03:41
Uncontrolled Keywords: P* model; inflation; Bangladesh; inflation; Bangladesh; P* approach; forecasts; velocity gap model; price gap model; output gap model; financial sector; monetary targeting policy
Fields of Research : 14 Economics > 1402 Applied Economics > 140219 Welfare Economics
14 Economics > 1401 Economic Theory > 140199 Economic Theory not elsewhere classified
14 Economics > 1403 Econometrics > 140303 Economic Models and Forecasting
Socio-Economic Objective: B Economic Development > 91 Economic Framework > 9101 Macroeconomics > 910108 Monetary Policy

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