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Is There a Threshold Level of Inflation for Bangladesh?

FASID-GRIPS Joint Graduate Programme, National Graduate Institute for Policy Studies, 7-22-1 Roppongi, Minato-ku, Tokyo 106-8677, Japan. Tel: +81-3-5413-6037. Fax: +81-3-5413-0016, zia_hayat{at}yahoo.com

Kaliappa P. Kalirajan

FASID-GRIPS Joint Graduate Programme, National Graduate Institute for Policy Studies, 7-22-1 Roppongi, Minato-ku, Tokyo 106-8677, Japan. Tel: +81-3-5413-6037. Fax: +81-3-5413-0016, Kalirajan{at}grips.ac.jp

Given the argument that an excessively low inflation threshold in developed countries may hurt economic growth, the objective of this study is to examine whether a developing country's perspective is different. The empirical analysis is done using the annual data from Bangladesh for the period 1976 to 2005. A specific question that is addressed in this paper is what the threshold inflation rate is for Bangladesh. The findings clearly suggest that the increase in inflation from any level has negative effects on economic growth, and substantial gains can be obtained by focusing monetary policy towards maintaining price stability.

Key Words: Inflation • Economic Growth • Threshold level • Bangladesh

Margin: The Journal of Applied Economic Research, Vol. 3, No. 1, 1-20 (2009)
DOI: 10.1177/097380100800300101


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