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An Econometric Analysis of the Determinants of Foreign Exchange Reserves in Bangladesh

Received: 5 November 2014     Accepted: 12 November 2014     Published: 17 November 2014
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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.

Published in Journal of World Economic Research (Volume 3, Issue 6)
DOI 10.11648/j.jwer.20140306.12
Page(s) 72-82
Creative Commons

This is an Open Access article, distributed under the terms of the Creative Commons Attribution 4.0 International License (http://creativecommons.org/licenses/by/4.0/), which permits unrestricted use, distribution and reproduction in any medium or format, provided the original work is properly cited.

Copyright

Copyright © The Author(s), 2014. Published by Science Publishing Group

Keywords

Co-Integration, ADF, Diagnostic Test, Imports, Broad Money and Foreign Exchange Reserves

References
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Cite This Article
  • APA Style

    Md. Niaz Murshed Chowdhury, Mohammed Jashim Uddin, Dr. Mohammad Saiful Islam. (2014). An Econometric Analysis of the Determinants of Foreign Exchange Reserves in Bangladesh. Journal of World Economic Research, 3(6), 72-82. https://doi.org/10.11648/j.jwer.20140306.12

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    ACS Style

    Md. Niaz Murshed Chowdhury; Mohammed Jashim Uddin; Dr. Mohammad Saiful Islam. An Econometric Analysis of the Determinants of Foreign Exchange Reserves in Bangladesh. J. World Econ. Res. 2014, 3(6), 72-82. doi: 10.11648/j.jwer.20140306.12

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    AMA Style

    Md. Niaz Murshed Chowdhury, Mohammed Jashim Uddin, Dr. Mohammad Saiful Islam. An Econometric Analysis of the Determinants of Foreign Exchange Reserves in Bangladesh. J World Econ Res. 2014;3(6):72-82. doi: 10.11648/j.jwer.20140306.12

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  • @article{10.11648/j.jwer.20140306.12,
      author = {Md. Niaz Murshed Chowdhury and Mohammed Jashim Uddin and Dr. Mohammad Saiful Islam},
      title = {An Econometric Analysis of the Determinants of Foreign Exchange Reserves in Bangladesh},
      journal = {Journal of World Economic Research},
      volume = {3},
      number = {6},
      pages = {72-82},
      doi = {10.11648/j.jwer.20140306.12},
      url = {https://doi.org/10.11648/j.jwer.20140306.12},
      eprint = {https://article.sciencepublishinggroup.com/pdf/10.11648.j.jwer.20140306.12},
      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.},
     year = {2014}
    }
    

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    T1  - An Econometric Analysis of the Determinants of Foreign Exchange Reserves in Bangladesh
    AU  - Md. Niaz Murshed Chowdhury
    AU  - Mohammed Jashim Uddin
    AU  - Dr. Mohammad Saiful Islam
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    DO  - 10.11648/j.jwer.20140306.12
    T2  - Journal of World Economic Research
    JF  - Journal of World Economic Research
    JO  - Journal of World Economic Research
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    PB  - Science Publishing Group
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    UR  - https://doi.org/10.11648/j.jwer.20140306.12
    AB  - 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.
    VL  - 3
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Author Information
  • Department of Economics, South Dakota State University, Brookings, USA

  • Department of Economics and Banking, International Islamic University Chittagong, Chittagong, Bangladesh

  • Associate Professor, Department of Economics, University of Chit

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