Exchange Rate Determination of Bangladesh: A Cointegration Approach

Document Type

Article

Publication Date

2012

Department

Agriculture & Tourism

Abstract

In this paper, I propose and estimate a model to determine the exchange rate for the Bangladeshi Taka (BDT) vis-à-vis. US Dollar (USD). I use monthly data for the period of January 1999 to August 2008. I employ the Johansen cointegration technique and I find that nominal exchange rate is cointegrated with several macroeconomic variables. As such, the model is consistent with standard international economic theory. In addition, I find that this model provides out-of-sample forecasts that are better than naïve random forecasting model. That is, the information that the cointegrated relationship provides, improves forecasting performance.

First Page

81

Last Page

96

Publication Title

Journal of Economic Cooperation & Development

Link to Full Text

Share

COinS