Effects of Exchange Rate Variation on Price Level and Output Growth in Bangladesh

Abstract

The paper empirically examines the impact of depreciation on domestic output growth and price level of Bangladesh. Exchange rate along with some other traditional factors like investment spending, bank credit, narrow and broad money and labor force have been taken into account to evaluate the influence of exchange rate fluctuation on economic growth and price level of Bangladesh. The macroeconomic time series variables are made stationary to employ regression techniques. The study finds that depreciation has an expansionary effect on output level and price level and the overall result is consistent with the view that depreciation leads to inflation fostering the output growth.Depreciation, which is essential to regain export competitiveness, should be handled pragmatically to uproot its adverse implication on long term economic growth of Bangladesh that might occur due to import contraction.DOI: 10.5901/mjss.2013.v4n6p205