Money and Economic Activity in Bangladesh: A Rational Expectations Approach
The study aims to test the hypothesis that only unanticipated movements in money affect real economic variables which is explicit in the rational expectations monetary models. The hypothesis is tested by using Bangladesh data. A money growth model for Bangladesh is specified. Unanticipated Money Growth (DMR) is defined as the residuals of the money supply equations. A macroeconometric model for Bangladesh is developed consisting of five equations. The equations are estimated by including both Unanticipated Money Growth (DMR) and Actual Money Growth (DM). The empirical result of the study is not encouraging for supporting the hypothesis that only unanticipated movement in money growth affects real output.