An ECM Approach for Long Run Relationship Between Real Exchange Rate and Output Growth: Evidence from Bangladesh
Keywords:Real Exchange Rate, Output growth, ECM, Unit root, Cointegrated, Recursive estimate
Currency exchange rate is an important aspect in modern economy which indicates the strength of domestic currency with respect to international currency. This study uses 42 years (1972 to 2013) time series data for Bangladesh in order to empirically determine whether the real exchange rate has significant impact on output growth for Bangladesh by using error correction model (ECM).The time series econometrics properties of the data series have been thoroughly investigated to apply ECM approach. The empirical evidence suggests mixed results; in the short run low exchange rate has positive significant effect while in the long run output growth is positively affected high exchange rate pass through.
Dhaka Univ. J. Sci. 63(2):105-110, 2015 (July)