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<p>This study investigates the short- and long-term determinants of inflation in Bangladesh. It examines how foreign direct investment, GDP growth, interest rates, and capital formation influence inflation dynamics. The study provide empirical evidence to guide policies aimed at maintain price stability while fostering sustainable economic growth. An autoregressive distributed lag (ARDL) model is applied using annual data from 1990–2024. Model selection is based on the Akaike Information Criterion (AIC), and diagnostic tests such as CUSUM and CUSUMSQ confirm parameter stability. Both short- and long-run relationships are analyzed, and the error correction term measures the speed of adjustment toward equilibrium after short-run shocks. Additional causality analysis is conducted to examine the direction of relationships between inflation and policy variables. In the long run, FDI significantly increases inflation, whereas GDP growth, gross fixed capital formation, and interest rates reduce it. Broad money, trade openness, and unemployment show no significant long-term effects. In the short run, broad money lowers inflation, while trade openness and lagged interest rates raise it. Unemployment reduces inflation. The error-correction term is negative and highly significant, confirming rapid convergence to equilibrium. The causality results indicate feedback effects, suggesting that policy instruments adjust in response to inflationary pressures. Policymakers should direct FDI toward productive, export-oriented sectors to curb inflationary pressures. Strengthening growth through industrial diversification and capital formation enhances supply capacity. Prudent monetary policy and balanced interest rate management are essential for stability. Trade and labor policies should promote domestic production and employment in high-productivity sectors. This study integrates short- and long-term analyses of inflation determinants within the ARDL framework and provides evidence on policy responses and macroeconomic interactions shaping inflation dynamics in an emerging economy.</p>

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Monetary policy and macroeconomic stability: investigating inflationary pressures in Bangladesh

  • 期刊论文

  • 发表日期：

    2026年6月1日

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  • Alfarabi Khan,
  • Md. Naim-Ul-Jannat Shoron,
  • Tanjim Anika

摘要

This study investigates the short- and long-term determinants of inflation in Bangladesh. It examines how foreign direct investment, GDP growth, interest rates, and capital formation influence inflation dynamics. The study provide empirical evidence to guide policies aimed at maintain price stability while fostering sustainable economic growth. An autoregressive distributed lag (ARDL) model is applied using annual data from 1990–2024. Model selection is based on the Akaike Information Criterion (AIC), and diagnostic tests such as CUSUM and CUSUMSQ confirm parameter stability. Both short- and long-run relationships are analyzed, and the error correction term measures the speed of adjustment toward equilibrium after short-run shocks. Additional causality analysis is conducted to examine the direction of relationships between inflation and policy variables. In the long run, FDI significantly increases inflation, whereas GDP growth, gross fixed capital formation, and interest rates reduce it. Broad money, trade openness, and unemployment show no significant long-term effects. In the short run, broad money lowers inflation, while trade openness and lagged interest rates raise it. Unemployment reduces inflation. The error-correction term is negative and highly significant, confirming rapid convergence to equilibrium. The causality results indicate feedback effects, suggesting that policy instruments adjust in response to inflationary pressures. Policymakers should direct FDI toward productive, export-oriented sectors to curb inflationary pressures. Strengthening growth through industrial diversification and capital formation enhances supply capacity. Prudent monetary policy and balanced interest rate management are essential for stability. Trade and labor policies should promote domestic production and employment in high-productivity sectors. This study integrates short- and long-term analyses of inflation determinants within the ARDL framework and provides evidence on policy responses and macroeconomic interactions shaping inflation dynamics in an emerging economy.