The Money Supply Process in Bangladesh: An Econometric Analysis

Abstract

Bangladesh Bank (BB) conducts monetary policy through targeting broad (M2) and narrow (M1) money  as operating instruments that will be influenced by Real and Nominal interest rate, Remittance, Bank Rate, Deposit interest rate. The success of monetary policy in achieving its objectives depends on the degree of controllability of M1 and M2 by Bangladesh Bank. This paper empirically examines the money supply process on the basis by the mainstream of Post-liberalization period covering the sample period of 1972/73-2009/10. It also Examine how M1 and M2 will be affected by the Speed of adjustment that is equal to the difference between deposit interest rate and nominal interest rate. The money supply function for Bangladesh has been empirically tested by using annual time series data. We have found that remittance is the most significant factor that highly influenced on narrow and broad money supply in Bangladesh. JEL Code: E31, E43, E51, E52