Bangladesh Bank Training Academy Journal

Abstract

Prudent management of money supply is considered as a key factor in smoothing macroeconomic stability. The better performance of monetary policy lies in attaining optimum management of money supply and stability in price level. As money supply plays key role in macroeconomic stability, the current paper attempt to explore the dynamic relationships between the money supply and its major determinants in Bangladesh. It applies the Autoregressive Distributed Lag (ARDL) model to assess the degree of influence of various factors on the money supply in Bangladesh using monthly data from 2008M1 to 2024M12. The findings indicate that the reserve money and the reserve-deposit ratio are the major contributors influencing the money supply in Bangladesh. In addition, currency-deposit ratio, excess reserve-deposit ratio, deposit rate, and exchange rate also affect the money supply. Since these factors have impacts over the money supply, the conduct of prudent monetary policy in Bangladesh will depend crucially on considering the implications of changes in those key factors.