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Monday, July 9, 2012

GDP growth and Inflation relationship

Well, Policy Research Institute (PRI) of Bangladesh conducted a research lead by Dr Sadiq Ahmed  mainly on the relationship between GDP growth and inflation in the context of Bangladesh.

Here is the news link on the issue.

What did the study find then?

1. There is a long-run negative relationship between GDP and inflation;
2. While seeking a threshold of inflation in Bangladesh, it finds that a 4.0%-5.0% inflation rate is the threshold to provide the flexibility of resource mobility for growth in Bangladesh (against the central bank's official claim of having a inflation threshold of 6.0%-8.0%).

What's new in this study?

Nothing significant. A Working Paper (WP0604: Inflation and Economic Growth in Bangladesh: 1981-2005) of the Policy Analysis Unit (PAU), Bangladesh Bank has done the similar approach back in 2005. What are the results of that study?

1. There exists a statistically significant long-run negative relationship between inflation and economic growth for Bangladesh;
2. The estimated threshold model suggests 6.0% as the threshold level (i.e., structural break point) of inflation above which inflation adversely affects economic growth.

FYI: Link of the WP0604 (Bangladesh Bank website-publications-research work-working papers).

It's not clear whether both the attempts (Bangladesh Bank and PRI) recognized the very first and previous attempt (PAU) in this area of economic research in Bangladesh.

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