Determinants of inflation in Bangladesh: An econometric investigation

Both the increase and the decrease of inflation rate (General Price level) are like a two side sharpened razor in an economy like Bangladesh. They both are harmful for an economy. Therefore, it has been attempted here to know about some experimented determinants of inflation. Moreover, in this respect a well-known econometric technique, namely, Autoregressive Distributed Lagged (ARDL) Model has been applied. By employing data series for 1972 to 2012, it has been indicated that the gross domestic product (GDPt), money supply (M2t), and interest rate (IRt) of current year of Bangladesh as well as previous year’s real exchange rate (RERt-1) and interest rate (IRt-1) have contributed to increase inflation in Bangladesh. It has also been noticed that current year’s real exchange rate (RERt) in Dollar and previous year’s money supply (M2t) have contributed to decrease the inflation rate. In our study, we emphasized on the significance of variables and availability of data because of which some important determinants like unemployment rate (Ut), remittance (REMt) and oil price (PPt) have been ignored in main model.