A framework is presented for investigating bivariate causal relations using Granger’s notion of causality. This framework is employed to test the relationship between the money supply and prices in Bangladesh using monthly data for the period 1973 to 1986. The results indicate evidence of significant unidirectional feedback running from prices to money. The analysis is extended to investigate the relationship between rates of change in money and prices and once again there is evidence of feedback from prices to money. The main conclusion is that strict exogeneity of the money supply is rejected. These results are consistent with a “structuralist” view of the Bangladesh economy. Policy implications are briefly discussed.

The extent of son preference and its effect on desire for additional children and contraceptive use is examined for rural Bangladesh. Our results show that there is strong son preference, expressed through contraceptive behaviour and desire for additional children, on the part of rural Bangladeshi women. In deciding whether or not to have an additional birth or the use contraception, sex composition of children and number of sons are the most important determinants. Most couples are guided in their desire for additional children by an ideal sex composition which is commonly found to comprise two to three sons and one daughter. Bangladeshi women want to have children of both sexes but their preference for sons is much stronger and the number much larger compared to those for daughters. It can be argued from our findings that if the desired number of sons and daughters have already been born, women will be more likely to use contraception and less likely to want additional children.

This paper specifies and estimates a short run money demand model for Bangladesh for the period 1974:1-1985:4. After both formal and informal tests of model selection, the Laidler short run real money demand model has been found to be appropriate. Mckinnon, White and Davidson’s (1983) non-nested test of model selection suggests that neither the long-linear nor the linear functional form has any superiority over the other for Bangladesh. Real permanent income and the expected rate of inflation have been found to be the important variables, both theoretically and statistically, in the money demand function. The long run permanent income elasticity of the demand for money has been found to exceed unity. In the case of Bangladesh, the empirical results show that both the demand for narrow and broad money are stable functions.