Bangladesh Bank Training Academy Journal

Abstract

The aim of this study is to explore the determinants of inflation in Bangladesh. To do that, this study applied the ARDL model using monthly time series data on selected economic variables such as money supply, exchange rate and industrial production index data from July 2010 to June 2023. This study also incorporated the Covid-19 dummy to understand the impact of the Covid-19 pandemic on the inflation dynamics of Bangladesh. The empirical findings of this study showed that inflation has a strong positive association with the money supply in Bangladesh in the long run. Besides, the exchange rate positively affects the inflation in the short run as well in the long run. Other variables such as industrial production index and Covid-19 dummy variables were not found statistically significant during the sample period. The findings of the study have some implications for the policymakers of Bangladesh. As there exists a strong positive association between money supply and inflation in the long run implies that policymakers need to consider the long-term impacts of the amount of money supply. Moreover, there is a strong positive relationship between the exchange rate and inflation in both the long as well as short run, therefore, policymakers should also be careful in determining the exchange rate.