Inflation, Economic Growth and the Balance of Payments in Bangladesh: A Macroeconomic Study

Book Description
M.A. Hossain takes a closer, critical look at Bangladesh's inflation and balance of payments. Using a combination of structural and monetary theories he develops an integrated, quarterly, macroeconomic model of inflation, economic growth and balance of payments for the period 1974 to 1985. The model used is based on two hypotheses: that inflation in Bangladesh is a monetary phenomenon, and that persistent trade deficits are inherent in its foreign-aid-based development strategy and its overvalued exchange rate policy.


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This book develops an integrated inflation and balance of payments model for the Bangladesh economy, which is then applied to policy analysis. While developing the model, elements of both the structuralist and monetarist theories have been combined. The empirical results support the twin hypotheses that inflation in Bangladesh is a monetary phenomenon and that persistent trade deficits are inherent in both its foreign-aid-based development strategy and its overvalued exchange rate policy. The policy experiments reinforce a priori expectations that restrictive monetary and fiscal policies may lower inflation and prevent a price spiral originating from any supply stocks. Further, a typical IMF stabilization package is found effective in lowering inflation and reducing trade deficits, with a marginal reduction in output.


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