Money Supply Function for Bangladesh: An Empirical Analysis

The study had empirically tested the money supply function for Bangladesh using annual time series data. Authors observed that high-powered money played a very significant role in the money supply process of Bangladesh, particularly with respect to the narrow money supply M1, thus providing some support for the monetarist model. However, beyond the monetarist view, additional variables in the light of the Keynesian and structuralist analysis, such as bank rate, external resources, and financial liberalization need to be taken into account in understanding the money supply process of the country. Other aforesaid variables were also found to exert some influence on the broad money supply in Bangladesh. However, given the poor performance of the narrow money model and the existence of multicollinearity problem in both models, the estimated results, even for the broad money model, needed to be interpreted with caution.