Volume 18, Article 1

Determinants of Inflation in Bangladesh: An Econometric Analysis using ARDL Bound Test Approach

Sayed Farrukh Ahmed*
K.M. Zahidul Islam**

Abstract: This paper examines the influential factors of inflationary propensity in Bangladesh by using time series data of the period from 1990-91 to 2012-13. The study applies an unrestricted error-correction model (UECM) version of auto-regressive distributed lag (ARDL) bounds F-test to elucidate the short-run and long-run elasticities of the determinants of inflation in Bangladesh. The estimated results reveal that in the long-run, petroleum price (pp) has positive impact on inflationary tendency. On the other hand, real GDP (RGDP) affects inflation positively in the short-run to a significant extent. However, in the shortrun, other variables such as broad money supply, domestic petroleum price, and private sector credit are found to be insignificant determinants of inflation in Bangladesh. Moreover, the present study suggests that government may initiate policies that may reduce inflation as well as may enhance increased productivity of goods and services of Bangladesh.

Keywords: Determinants, Bangladesh, ARDL bounds F-test, Unrestricted error-correction.

* Assistant Professor, Faculty of Business & Economics, Daffodil International University, Dhaka-1207. Email: farrukh@daffodilvarsity.edu.bd
** Associate Professor, Institute of Business Administration, Jahangirnagar University, Savar, Dhaka-1342. E-mail: kmz@juniv.edu