Bangladesh Bank Training Academy Journal

Abstract

The objective of this study is to explore the inflation-economic growth linkage, if any, in Bangladesh. With this view, various tables and charts, correlation matrices, pair-wise Granger Causality tests and a quadratic regression equation estimated by OLS based on time series annual data covering the sample period from 1976 to 2012 are used. The results of all the data including regression analysis convincingly demonstrate that the relationship between inflation and growth is non-linear with an existence of a threshold level of inflation within the range of 7-8 percent. This implies that targeting too low an inflation level (relative to the threshold) would be hurtful for growth in terms of potential cost of forgone output and, at the same time, too high level of inflation would also impede economic growth.