Nominal Interest Rate, Inflation and Money Market Link in Bangladesh: An Econometric Analysis
DOI:
https://doi.org/10.18034/ajhal.v7i1.501Keywords:
Inflation rate, Nominal interest rate, Unit root test, Johansen co-integration test, ARDL model, Bound test, Granger causality testAbstract
This paper pursues to establish a connection among the nominal interest rate, the money market, and the inflation rate in Bangladesh using monthly time series data from June 2005 to March 2019. Because some data are stationary at the level and others are stationary at the 1st difference, the ARDL model is applicable for checking the link. There is a strong positive short-term and long-term relationship between inflation and nominal interest rates, suggesting that Bangladeshi data support the Fisher hypothesis for that time. For this study, the T bill, the call money rate is used as a measure of the money market. The research indicates that regulators should concentrate on call money rates in short-term and T-bill and call money rates in the long-term to control Bangladesh's nominal interest rate.
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