An Econometric Analysis of the Determinants of Foreign Exchange Reserves in Bangladesh
Journal of World Economic Research
Volume 3, Issue 6, December 2014, Pages: 72-82
Received: Nov. 5, 2014; Accepted: Nov. 12, 2014; Published: Nov. 17, 2014
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Authors
Md. Niaz Murshed Chowdhury, Department of Economics, South Dakota State University, Brookings, USA
Mohammed Jashim Uddin, Department of Economics and Banking, International Islamic University Chittagong, Chittagong, Bangladesh
Dr. Mohammad Saiful Islam, Associate Professor, Department of Economics, University of Chit
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Abstract
This study undertakes an econometric analysis of the determinants of foreign exchange reserves. Yearly time series data have been used to figure out that type of relevant variables that are very much momentous for the determinants of foreign exchange reserves. This paper attempts to identify the key determinants of foreign exchange reserves in Bangladesh using Augmented Dicky Fuller (ADF) unit root test to examine the stationarity, Engle Granger residual based co-integration approach to show the co-integrating relationship among variables, and diagnostic tests for better modeling. The empirical results confirm that there exists a strong relationship among foreign exchange reserves, exchange rate, remittance, home interest rate, broad money 〖(M〗_2), UPI of export and import, and per capita GDP. The coefficients are found to change smoothly, as a function of seven threshold variables- out of nine candidates where six variables are statistically significant. Drawing inferences from these findings, it can be suggested that exchange rate, a strong remittance related policies, quality items of exports, and sustainable GDP can keep a substantial and feasible roles to make up a healthy amount of foreign exchange reserves for the host country like Bangladesh.
Keywords
Co-Integration, ADF, Diagnostic Test, Imports, Broad Money and Foreign Exchange Reserves
To cite this article
Md. Niaz Murshed Chowdhury, Mohammed Jashim Uddin, Dr. Mohammad Saiful Islam, An Econometric Analysis of the Determinants of Foreign Exchange Reserves in Bangladesh, Journal of World Economic Research. Vol. 3, No. 6, 2014, pp. 72-82. doi: 10.11648/j.jwer.20140306.12
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