Bangladesh Bank Training Academy Journal

Abstract: The intention of this paper is to examine whether Real Exchange Rate (RER) depreciation has any impact on export, import and trade balance of Bangladesh. Real exchange rate is calculated using Tk./dollar nominal exchange rate with the consumer price index of US and Bangladesh. Trade-weighted real eff ective exchange rate (REER) has also been used to examine the eff ects of depreciation on the variables. The real eff ective exchange rate is calculated by using eight (8) major trading partner countries exchange rate and the consumer price Index. The industrial production index of Bangladesh and trading partners are used as a proxy for the domestic and foreign income. Cointegration test, Vector Error Correction model (VECM), and Impulse Response Functions (IRFs) derived from the unrestricted VAR have been used to estimate the models using monthly data for the sample period from June 2003 to June, 2014. The empirical results show short-run and long-run relationship between trade balance, RR, and domestic income. An evidence of reverse L-shaped impact is observed while estimating the model with RER implying that real exchange rate depreciation is eff ective in infl uencing export, import and trade balance in Bangladesh. However, this study does not fi nd any impact of trade-weight real eff ective exchange rate on the trade balance and imports though J curve eff ect is noticed with respect to exports.

Citation: Younus, S., & Chowdhury, M. M. I. (2016). Real exchange rate and its impact on export, import and trade balance: Is there any J-curve effect in Bangladesh? Thoughts on Banking and Finance, 5(1), 9–27.

Abstract: Exchange rates are important macroeconomic policy variables. In formulating exchange rate policies, one of the major concerns of the policy makers is the responsiveness of trade fl ows to relative price changes. The Marshall - Lerner condition shows that if absolute value of price elasticity of export and import demand is greater than unity, devaluation will improve trade balance. Using the Johansen and Johansen and Juselius Cointegration method we test the Marshall - Lerner condition for Bangladesh for the period 1985-2014. Estimated results show that Marshall - Lerner condition holds for Bangladesh in the long run. Export is current export price inelastic which is consistent with earlier studies. Export is also lag export price inelastic. To get the benefi t of currency devaluation, export demand might be made price elastic by increasing the export base, including new products in the export basket, maintaining quality, searching new markets for exports, improving infrastructure facilties for smooth production and supply of exports.

Citation: Begum, L. A., & Alhelal, H. M. (2016). Revisiting the Marshall-Lerner condition in the Bangladesh economy: A cointegration approach. Thoughts on Banking and Finance, 5(1), 28–43.

Abstract: The importance of nonbank fi nancial institutions (NBFIs) to the economy cannot be overemphasized. Compared to the previous year, the deposit of NBFIs rose by 36% in the year 2013. Analyzing the profi tability of non-banking institutions is the central theme of the study: it marks off the model nonbank fi nancial institutions use in Bangladesh. Evoking insight into profi tability model helps in pinning down strength and weakness, which in turn ushers to better dealing with distress condition. Thus understanding NBFI profi tability model has policy implication. Using panel data the article regresses the profi tability on assets, non-interest revenue and equity. The model accounts 90 of variability in profi ts. The eff ect of noninterest income is most pronounced among the regressors, which vouches that profi tability hinges more upon it for NBFIs and less on interest source. Size puts a negative impact on profi ts negating the the bigger the better notion, however strong the words suppoting it are. The eff ect of equity is understandably negative on ROE.

Citation: Abdullah, S. A. (2016). Profitability study of non-bank financial institutions: A panel data analysis. Thoughts on Banking and Finance, 5(1), 44–60.

Abstract: Yield curve is the combination of interest rates against diff erent maturity of bills and bonds. Weighted average interest rate of accepted bids is used to derive the yield curve. 91-day government treasury bill rate is the reference rate of the economy. Yield curve may be concave, convex or relatively fl at depending on the short term and long term interest rates and amount. Interpolation and extrapolation method is used to derive the yield of a particular maturity due to lack of secondary market in Bangladesh. Summation of all individual auction rates provides shape of the yield curve. Mathematical convention is demonstrated to formulate the price and interest rate of bill and bond. Macroeconomic development is considered to derive the yield curve rates. Amount of liquidity and need of the government and central bank specifi cally establish the yield rate. It will help to determine the interest rate of the economy impacting the exchange rate, CPI infl ation rate and GDP growth. Yieldcurve rate is used for calculating deposit and lending rates of banks bearing in mind the liquidity position of the economy. It will also help to evaluate the held to maturity (HTM) and held for trade (HFT) securities of the banking and trading book of the banks.

Citation: Sayed, I. A. (2016). Yield curve of Bangladesh and burning economic issues. Thoughts on Banking and Finance, 5(1), 61–68.

Abstract: The principal objective of this paper is to investigate the price transmission mechanism of commodity ‘rice’ between Bangladesh and her major import destination country, India due to its importance in ensuring food security in Bangladesh. So, an in-depth study about the degree of market integration and price transmission mechanism in the domestic rice market is essential for the policy makers, rice producers and other rice value chain role players since it aff ects their decisions which in turn infl uence their profi tability and determine the overall supply in the rice market of Bangladesh. To address the mentioned issue, this study engages both Johansen & Juselius (1990) cointegration technique and innovation accounting approach to critically examine the price transmission process of rice price from Indian market to Bangladeshi market covering the time period from July, 1998 to May, 2015. This paper fi nds that the price shock in Indian rice market induces price change in the Bangladshi rice market both in short run and long run. The fi ndings strongly suggest to consider the impact of external forces in stabilizing the domestic rice price of Bangladesh along with the role of existing internal factors.

Citation: Hoque, M. R., Chowdhury, M. M. I., Aziz, T., & Sarker, M. N. A. (2016). Price transmission dynamics in the rice market of Bangladesh. Thoughts on Banking and Finance, 5(1), 69–82.

Abstract: The main objective of this paper is to examine the green banking practice in Bangladesh and suggest ways to increase sustainable development through green banking activities. Since the banking sector is the dominant supplier of credit to various sectors of the economy, especially industrial and the agricultural sectors, sound innovative green banking practices may promote environmentally sustainable and socially responsible investment. The study fi nds that although most banks have adopted green banking policy and continued to show improvements, private commercial banks and foreign commercial banks performed better than state-owned commercial banks. The study also noticed that projects on effl uent treatment plants, solar energy plant, bio-fertilizer plant, Hybrid Hofi man Kiln are neglected despite their crucial role in environmental protection.

Citation: Mia, M. A., & Naim, M. J. (2016). Green banking practices in Bangladesh: An ingenious action for sustainable development. Thoughts on Banking and Finance, 5(1), 83–95.

Abstract: The study strives to assess short-run and long-run relationship between government expenditure and GDP per capita in South Asian region using panel data over the period 2001-2014. To investigate this relationship Wagner’s hypothesis has been estimated which support the existence of long-run relationship between economic growth and growth of public expenditure. The methodology includes both Pedroni’s and Kao’s residual based cointegration tests which confi rmed that the variables used in the model are cointegrated. Granger causality test exhibits that there is causation from government fi nal consumption expenditure to GDP per capita. Error-correction model has been also used to check short-run dynamics. The study found both short- and long-term relationship between government expenditure and GDP per capita. Hence the study confi rms the validity of Wagner’s Law.

Citation: Siddique, M. N. E., Efa, A. A., & Rahaman, A. (2016). An empirical testing of Wagner’s law in South Asia: A panel unit root and cointegration analysis. Thoughts on Banking and Finance, 5(1), 96–110.