Title : Exchange Rate Sensitivity of In-payments and Out-payments of Bangladesh: An Aggregate vs. Bilateral Approach

Authors : Gour Gobinda Goswami and Mohammad Monirul Islam Sarker

Abstract : Movements in exchange rate and income influence both the volume and the value of exports (in-payments) and the volume and the value of imports (out-payments) of a country. This paper attempts to empirically estimate the impact of currency depreciation on in-payments and out-payments of Bangladesh both in the bilateral and the aggregate context by using monthly data over July 1973 to December 2008 for Bangladesh with her 21 major partners in the light of bilateral modelling introduced by Bahmani-Oskooee and Goswami (2004). The autoregressive distributed lag approach to cointegration introduced by Pesaran et al. (2001) has been used to estimate both the short-run and the long-run coefficients of the aggregate and the bilateral in-payments and the out-payments function. The empirical result reveal that in the long run when the bilateral in-payments are expressed in terms of domestic currency the exchange rate coefficients are mostly insignificant with most of the partners whereas they turn out to be significant in the aggregate model. The out-payments function performs poorly both in the bilateral and the aggregate set-up in terms of the significance of the exchange rate coefficients. The income coefficients are mostly insignificant for bilateral model whereas it is significant for aggregate set up in the in-payments and out-payments function no matter whether we use bilateral or the aggregate approach. Hence, there is no substantial difference in using the bilateral or the aggregate approach.

Journal : Bank Parikrama Volume : 34 & 35 Year : 2010 Issue :
Pages : 38-59 City : Edition : Editors :
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