Volume 22: Article 8

Relationship Between Exchange Rate and Inflation Rate in Bangladesh: An Empirical Investigation

Md. Wahidul Habib*
Mohammad Osman Gani**
Jarin Tasnim***

Abstract: The paper investigates the relationship between the exchange rate and inflation rate in Bangladesh using yearly data from 1988 to 2018. The data on the relevant variables from 1988 to 2018 are obtained from various issues of Economic Trends, Bangladesh Bank and Economic Review, Ministry of Finance. The paper employs descriptive statistics, correlogram, unit root tests such as Augmented Dickey-Fuller (ADF), Dickey-Fuller test with GLS de-trending(DFGLS), and Phillip Perron’s (PP) tests, and Granger Causality Test. The results of the study show that there is bidirectional causation exists between the exchange rate and inflation rate. Policymakers and economic modelers should pay attention to these findings. It’s critical to account for structural breaks when checking for unit roots when modeling inflation rates. The researchers could consider data from 1972 to 2020 instead of data from 1988 to 2018 to get a better picture or trend in the case of inflation and exchange rate. For analyzing data, the unit root test and Granger causality test have been used.

Keywords: Exchange rate, Inflation, Unit Root Test

* Assistant Professor, Faculty of Business, ASA University Bangladesh, Dhaka, Bangladesh,
E-mail: wahidul123@hotmail.com

** Assistant Professor, Department of Business Administration in Marketing, Bangladesh
University of Professionals, Dhaka, Bangladesh, E-mail: osman@bup.edu.bd

*** Lecturer, Department of Business Administration General, Bangladesh University of
Professionals, Dhaka, Bangladesh, E-mail: jarin.tasnim@bup.edu.bd