DOI: https://doi.org/10.59321/BAUETJ.V4I1.26
AUTHOR(S)
Md. Monir Khan1*
ABSTRACT
This paper re-assesses the Dornbusch’s (1976) sticky price monetary framework of exchange rate determination by adopting Autoregressive Distributive Lag (ARDL) bound testing approach as well as ARDL Error Correction Model (ECM) to show the long-run relationship for monthly data from January 2010 to July 2022. With the advantage of ARDL model which jumble both the I(0) and I(1) variables, result shows that this model has long run relationship between exchange rate and macro variables which includes in this model. By using ARDL (5, 11, 12, 12, 10) model estimation based on AIC criteria, the findings of this paper shows that BDT overshoot both in short-date as well as long run and patronize the overshooting hypothesis outlined by Dornbusch in 1976. Nevertheless, this overshooting phenomenon does not occur in the present month but in one month after.