Inflation–growth nexus: some bivariate EGARCH evidence for Bangladesh

Abstract

This study examines the inflation–growth nexus for Bangladesh over the period 1976–2009 in a bivariate exponential generalized autoregressive conditional heteroscedasticity in mean (EGARCH-M) model. This work finds that both growth and inflation adversely affect each other in a lagged fashion in Bangladesh. Inflation uncertainty appears to be conducive to growth for the country, contradicting the Friedman hypothesis. Growth uncertainty, which is also thought to be inimical to growth, affects the average growth rate positively. Thus, the Central Bank should shift its target from controlling inflation uncertainty to reducing a rise in inflation to ensure faster growth in Bangladesh.

Keywords:

• inflation
• growth
• Bangladesh economy
• inflation uncertainty
• growth volatility
• EGARCH

JEL Codes:

• E31
• E58
• C22
• O53