Bangladesh Bank Training Academy Journal

Abstract

The present study applies an ARDL model to examine the complex interplay among monetary policy, inflation, broad money supply, exchange rates and remittances in the context of Bangladesh. The investigation is grounded on yearly time series data covering the period from 1978 to 2022. The results of our unit root and cointegration analysis indicate that the variables under consideration demonstrate a mixture of integrated of order I(0) and integrated of order I(1) features. The study revealed that, in the short term, the effects of interest rates (IR) and inflation rates (IN) on remittances (REM) were shown to have a considerable influence on the flow of remittances. Conversely, exchange rates (EX) and broad money (BM) were deemed to be statistically insignificant. The Error Correction Mechanism (ECM) coefficient indicates a significant annual correction rate of around 26.45% for short-term aberrations from the long-run equilibrium in remittances. Surprisingly, the long-term association did not show any statistical significance in respect to exchange rates (EX). The findings highlight the crucial economic role of interest rates and inflation in influencing remittance flows, underscoring the need for balanced monetary policy and inflation control to harness remittances as a stabilizing force for Bangladesh’s economy. The aforementioned findings provide significant insights for policymakers, emphasizing the importance of implementing a well-rounded monetary policy, effectively managing inflation and promoting financial inclusivity in order to maximize the positive impact of remittances on Bangladesh's economic stability and progress.