Food Price & Money Supply : a Causality and Analysis for Bangladesh Economy

Journal of Social and Economic Policy, Vol. 6, No. 2, (2009) : 1-6

.fOOD PRICES AND MONEY SUPPLY: A CASUSALITY ANALYSIS .OR BANGLADESH ECONOMY
QAZI MUHAMMAD ADNAN HYE*, KASHI. IMRAN & SABEEN ANWAR
The impact of monetary shock on the food prices has been the hot issue in these days. This research attempts to investigate the direction of causality between the food prices and money supply in Bangladesh, using ARDL causality test. Empirical results show unidirectional causality from money supply to food prices in Bangladesh. Hence the money supply is not neutral in determining food prices. Therefore it recommended that in Bangladesh monetary policy instrument could use to control inflation in general and food inflation in particular case. Keywords: .ood Prices, Money Supply, ARDL. Jel Classification: E3, E51.

INTRODUCTION Recently Bangladesh has face strong upward pressure on food prices. According to the Bangladesh Bank (2008) the poor people normally face a higher rate of inflation than the non-poor in Bangladesh. This is likely to have additional undesirable penalty on the welfare of the poor in both rural and urban areas in the country. The analysis also shows that the higher inflation rate of the poor in recent years has mainly arisen from higher food prices which have larger weights in the consumption basket of the poor. These findings thus have significant implications for designing appropriate antiinflation policies by the government. Conventional agricultural economics examine that the food consumption and prices are determine by the interaction of supply and demand forces. In the short run, supply is relatively fixed and inflexible, and prices adjust so product clear the market. When supply more than demand, prices goes down and consumers buy more. Conversely, smaller supply of food than prices will be higher and smaller purchases. In the long run, framers adjust production in response to market prices, producing more of higher priced goods and less

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