Economics
1.0 Introduction
Although inflation is generally thought of as an inordinate increase in the general price level, throughout the history of economics the causes of inflation and the definition of inflation itself remained as an unresolved issue. There is a general agreement that, in the long-run, inflation is a monetary phenomenon. In short-run, however, many other factors could cause inflation that instigates unsettled debate on the causes of inflation. Every school of economists tries to define inflation and explain the causes of inflation in their own way. The heterogeneity of views on inflation does not only exist among various groups of economists but it is strong enough also among economists of the same group.
Bangladesh has been experiencing a rapid growth in the general price level in recent years. The rate of inflation has crept up steadily since July 2009, rising from an average of 2.3 per cent during 2008/09 to a peak of 12 per cent in September 2011. The inflation rate declined to 9.9 percent in April 2012. The rapid rate of inflation has become a major economic and social problem. Unless this is tackled forcefully and with some urgency it could become a substantial political debacle for the Government when it seeks re-election in the next 18 months. It is also important that right policy choices are made in the effort to control inflation based on sound analysis.
Inflation is not only a phenomenon in developing countries but it has also accelerated tremendously in developed economics as well. Some critical scholars argue that such inflation in developed economies generates “imported inflation” in developing countries. There are channels through which imported inflation affects the local economy. In most open economies, foreign inflation is transmitted to the domestic economy through import prices. Furthermore, due to the unequal relationship in the terms of trade and the dependence – dominance role of developed market, the price of exports of
Although inflation is generally thought of as an inordinate increase in the general price level, throughout the history of economics the causes of inflation and the definition of inflation itself remained as an unresolved issue. There is a general agreement that, in the long-run, inflation is a monetary phenomenon. In short-run, however, many other factors could cause inflation that instigates unsettled debate on the causes of inflation. Every school of economists tries to define inflation and explain the causes of inflation in their own way. The heterogeneity of views on inflation does not only exist among various groups of economists but it is strong enough also among economists of the same group.
Bangladesh has been experiencing a rapid growth in the general price level in recent years. The rate of inflation has crept up steadily since July 2009, rising from an average of 2.3 per cent during 2008/09 to a peak of 12 per cent in September 2011. The inflation rate declined to 9.9 percent in April 2012. The rapid rate of inflation has become a major economic and social problem. Unless this is tackled forcefully and with some urgency it could become a substantial political debacle for the Government when it seeks re-election in the next 18 months. It is also important that right policy choices are made in the effort to control inflation based on sound analysis.
Inflation is not only a phenomenon in developing countries but it has also accelerated tremendously in developed economics as well. Some critical scholars argue that such inflation in developed economies generates “imported inflation” in developing countries. There are channels through which imported inflation affects the local economy. In most open economies, foreign inflation is transmitted to the domestic economy through import prices. Furthermore, due to the unequal relationship in the terms of trade and the dependence – dominance role of developed market, the price of exports of
References: Ahmed, Sadik (2012), “Explaining Inflation in Bangladesh”, Policy Research Institute (PRI), Bangladesh, Vol 20 No 224 Regd No DA 1589, July 2012 Aukrust (1977), “Inflation in the Open Economy: A Norwegian Model,” in L Ahmed S. & Mortaza G. (2005), “Inflation and Economic Growth in Bangladesh: 1981: 2005”, Policy Analysis Unit (PAU), Bangladesh Bank, Working Paper Series: WP 0604, December 2005 Engle, R Ministry of Finance, (Various Issues 1997-2012), “Bangladesh Economic Review,” Government of Bangladesh, Dhaka Darrat, Ali (1986) “Money, Inflation, and Causality in the North African Countries”, Journal of Macroeconomics, Vol Granger, C.(1969), “Investigating Causal Relations by Econometric Models and Cross-Spectral Methods,” Econometrica, 37, 424-438