Assessing the effectiveness of monetary policy in Bangladesh

Abstract

This chapter attempts to analyze the effectiveness of monetary policy in Bangladesh by identifying various transmission channels. Structural Vector Autoregressive (SVAR) model has been applied to the monthly data between 1989 M1 and 2018 M12. Positive innovation in broad money supply causes an increase in price level and bank credit, but only in the short run. Expansionary monetary policy also influences nominal exchange rate of Taka. However, the study suggests that structural weaknesses of the financial system and lack of dynamic adjustments of policy rates be the key reasons for which monetary policy appears to be less effective in Bangladesh.