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Construction of a Macroeconomic Model of the Bangladesh Economy

Ashok Parikh

 

Abstract

The paper constructs a macro-econometric model of the Bangladesh economy using the Keynesian approach of price rigidity with quantity rationing. It also explicitly brings out the structure of the economy and interdependence between various sectors of the economy and, to capture the effects of monetary and fiscal stimulus on the structure of the economy, the model includes monetary and fiscal variables. One feature of the model that distinguishes it from that developed by Nurul Islam is the inclusion of the weather factor. It is an underlying idea of the model that although monetary authorities have some control over the money supply, there are powerful forces in the economy which limit the extent of this control over changes in money supply. Accordingly, the model departs from the Keynesian tradition and treats one component of money supply namely, bank lending to the private sector and government budget deficit as endogenously determined and the other component exoge- nously determined.  

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