Exchange Rate and Trade Balance of Bangladesh: Causality and Cointegration Analysis

Authors

  • Md Golam Mostofa Associate Professor, Department of Population Science and Human Resource Development, University of Rajshahi, Rajshahi
  • Md Abdur Rashid Assistant Porfessor, Department of Business Administration, Northern University Bangladesh, Dhaka

DOI:

https://doi.org/10.3329/jbt.v9i2.26193

Keywords:

Trade balance, Exchange rate, Cointegration, Granger causality, Error correction, Speed of adjustment

Abstract

We investigate the interrelationship between the monthly trade balance and exchange rate data of Bangladesh. We find the existence of cointegration between these two variables. Error correction model reveals that the speed of adjustment coefficient of the trade balance equation corrects about 13% of any deviation from the long-run path within a month with a unidirectional causality running from exchange rate to trade balance. While the speed of adjustment coefficient of the exchange rate equation corrects only 0.003% within a month. This is somewhat slow and statistically insignificant.

Journal of Business and Technology (Dhaka) Vol.9(2) 2014; 15-25

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Author Biography

Md Golam Mostofa, Associate Professor, Department of Population Science and Human Resource Development, University of Rajshahi, Rajshahi



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Published

2015-12-31

How to Cite

Mostofa, M. G., & Rashid, M. A. (2015). Exchange Rate and Trade Balance of Bangladesh: Causality and Cointegration Analysis. Journal of Business and Technology (Dhaka), 9(2), 15–25. https://doi.org/10.3329/jbt.v9i2.26193

Issue

Vol. 9 No. 2 (2014)

Section

Articles