The Impact of Depreciation on Domestic Price Level of Bangladesh.

Abstract

The paper empirically examines the impact of depreciation on domestic price level of Bangladesh. This study also examines the impact of exchange rates and external shocks on import prices, domestic producer and consumer prices for the economy of Bangladesh. The desire response function proposes that exchange rate pass through to consumer prices is the very high; followed by producer prices while exchange rate pass through to import prices is the lowest. There is strong evidence of a positive and significant association between the pass-through and the average inflation rate across the county and periods. Our findings also reveal the existence of bidirectional causality only for the case of nominal effective exchange rate and producer prices. The inflation rate, moreover, dominates other macroeconomic variables in explaining cross-regime differences in the pass-through.

Keywords: pass-through, inflation, exchange rate.var model.