Volatility in the call money rate and efficacy of monetary policy operations in Bangladesh

Shahiduzzaman, Md and Naser, Mahmud Salahuddin (2007) Volatility in the call money rate and efficacy of monetary policy operations in Bangladesh. Working Paper. Bangladesh Bank , Dhaka, Bangladesh. [Report]

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Abstract

This paper examines the pattern of volatility in the call money rate and its association to monetary policy operations of Bangladesh Bank (BB). In the process, it explores empirical issues like the comovement of money market rates and the presence of heteroscedasticity in the call money rate. The first stage analysis supports the view that money market rates co-move and there is a co-integration relationship between overnight money market rate and BB's policy interest rates. At the second stage,
long-run properties of the data were incorporated while trying to investigate the efficacy of operational policy of BB in the indirect policy regime by separating the short-run and long-run effects. As the variances of the error terms are not constant, OLS estimation provides a false sense of precision. A GARCH model is therefore estimated which suggests that the operational policy of BB is
effective in influencing the rate volatility in Bangladesh. The empirical evidence of this study will assist in better understanding the interest rate channel of monetary transmission, overnight money market behavior, and operational policy of BB.


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Item Type: Report (Working Paper)
Refereed: No
Item Status: Live Archive
Additional Information: Copyright © 2007 by Bangladesh Bank
Faculty / Department / School: Historic - Faculty of Business - School of Accounting, Economics and Finance
Date Deposited: 27 Jun 2013 00:23
Last Modified: 02 Oct 2013 00:47
Uncontrolled Keywords: call money rate; volatility; policy rate; co-movement
Fields of Research : 15 Commerce, Management, Tourism and Services > 1502 Banking, Finance and Investment > 150205 Investment and Risk Management
14 Economics > 1401 Economic Theory > 140199 Economic Theory not elsewhere classified
16 Studies in Human Society > 1605 Policy and Administration > 160505 Economic Development Policy
Socio-Economic Objective: B Economic Development > 91 Economic Framework > 9101 Macroeconomics > 910108 Monetary Policy
URI: http://eprints.usq.edu.au/id/eprint/6292

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