Bangladesh Bank Training Academy Journal

Abstract

This study examined the monetary policy effectiveness in Bangladesh with a vector autoregression (VAR) approach. Recursive identification was used to evaluate the dynamic responseof macroeconomic variables to apositive nominal interestrate shock. Theresults show that over theperiod 2000-2013, the monetarypolicy was effective in influencing aggregate output,price level, exchange rate and stockprices. Thispaper alsofinds that money supply doesnotperform well as a monetarypolicy instrument to influence thereal variables. Results from the Bangladesh model imply that output and prices are more sensitive to changesin theshort term interestrates.