INFLATION AND ECONOMIC GROWTH IN BANGLADESH
Keywords:
Inflation, Economic Growth, Bangladesh, Cointegration, Granger causalityAbstract
The main purpose of this study is to find out the longrun of relationship between inflation and economic growth in Bangladesh over the period 1978 to 2010. A stationarity test was carried out using the Augmented Dickey-Fuller (ADF) and Phillip-Perron (PP)tests and stationarity found at first difference at 1% and 5% level of significance. The result of the Co-integration test showed that for the periods, 1978-2010, there was no co-integrating relationship between inflation and economic growth for Bangladeshi data. Further effort was made to check the causality relationship that exists between the two variables by employing the VAR-Granger causality at two different lag periods. The results showed the same at different lags. The first test was conducted using lag two (2) and in the result unidirectional causality was seen running from Inflation to economic growth. Further test at lag four (4) was carried out and it supported the first by also indicating a unidirectional causality running from inflation to economic growth. Thus, the study through the empirical findings maintain the fact that the causality that run from inflation to economic growth is an indication of relationship showing that inflation indeed has an impact on growth
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