Bangladesh Bank Training Academy Journal

Abstract

This study has tried to examine the exchange rate performance on the reserve accumulation of Bangladesh in the floating regime. Using quarterly time series data (2003-2018), this paper has attempted to explore the influence of exchange rate on foreign exchange reserves by employing standard econometric techniques in Bangladesh economy. The findings of the empirical analyses reveal that the foreign exchange reserves have no statistically significant response to the exchange rate movements, but the expected positive sign in the coefficient of exchange rate gives some useful insight like that there may be an economic implication. On the other hand, lag inflation has a significant negative interface on reserve growth and foreign direct investment inflow growth has a significant positive influence on reserve growth. The effect of the rest of the other variables on reserve growth is not statistically well justified. In the end, it may be concluded that although the nominal exchange rate chans and reserve growth relationship is not empirically established; however, from the economic point of view, the floating exchange rate regime has an important implication on the macroeconomic behavior of Bangladesh economy.