An ECM Approach for Long Run Relationship Between Real Exchange Rate and Output Growth: Evidence from Bangladesh

Abstract

Currency exchange rate is an important aspect in modern economy which indicates the strength of domestic currency with respect to international currency. This study uses 42 years ' (1972 to 2013) time series data for Bangladesh in order to empirically determine whether the real exchange rate has significant impact on output growth for Bangladesh by using error correction model (ECM).The time series econometrics properties of the data series have been thoroughly investigated to apply ECM approach. The empirical evidence suggests mixed results; in the short run low exchange rate has positive significant effect while in the long run output growth is positively affected high exchange rate pass through.

Transmission Mechanism of Monetary Policy Channels and Economic Growth in Ethiopia: Cointegration and Causality Analysis Approach

“…Based on the Johansson co-integration test of the long-run relationship broad money supply, real effective exchange rate and deposit interest have positive relationship with real economic growth This result convince with the study [21], [14] in Bangladesh and Zambia respectively, but domestic credit has negative relationship with real economic growth in the long-run, the possible reason for this study is; for developing country credit view of monetary policy will have a greater effect on expenditure by smaller firms, which are more dependent on bank loans than it will on large firms, which can access the credit markets directly through stock and bond markets (and not only through banks). Apart from being forced to cut their loans supply, banks generally increase their lending rate which in turn raises external finance premium, and then output will decline.…”

Dynamics of Financial Development and Economic Growth: Panel Data Analysis for Selected Indian States

“…However, the statistically insignificant value of the ECT values for the same relation does not provide any evidence of the long run relationship from SDP to number of credit accounts. Considering the other relation where SDP=f(CA) suggests that although, in short run credit do not have a significant impact on the economic growth, but the statistically significant ECT value (Kamal, 2015 andBhanumati andAzhagaiah, 2014) illustrates that higher credit allocation in the long run in turn helps in boasting the growth of the economy. The estimated coefficient of the residual from the VECM test (ECT) with statistically significant value and a negative sign confirms the long-run equilibrium relation between the independent and dependent variable at 1 per cent level of significance.…”

Effect of Remittance in the Transformation of Exchange Rate in Bangladesh Economy

“…In other work, Uddin, Rahman, and Quaosar (2014) inspected a bivariate connection among GDP and floating scale without fusing other pertinent factors that could likewise impact yield development [7]. Kamal (2015) utilized a similar model to examine the long-run connection between the two factors [8]. Then again says, an arrangement of really fixed exchange rate powers nations to keep their value levels in line, and thusly they are probably going to tolerate the punishment of an exchange deficiency than their neighboring who pursue coasting floating exchange scale systems and an increasingly expansionist strategy (Mussa (2000) [9].…”