Nexus of price and income with money in Bangladesh

Abstract

The key objective of this thesis is to investigate the linkages of money with income and price level using annual time series data for the period of 1978 to 2018 of Bangladesh. The stationarity of the data has been tested through unite root test by using both Augmented Dickey Fuller (ADF) test and Phillips Parron (PP) test. It is also applied OLS regression and bi-variate Granger causality tests to define the direction of causality of money to price or income or both. This paper discovers that money supply in Bangladesh is not income generating rather it is inflationary. This result is also reinforced by the Granger causality test. Therefore, monetary policy as a means to employment generation or poverty reduction or to curve inflation in Bangladesh should be designed and implemented with more care particularly credit flow needs to be headed for thirsty, productive and efficient sectors of the economy. The data and econometric techniques used in the paper is also a progress over the early studies.