| Author | Mohammad, Ear |
| Note | A project submitted in partial fulfillment of the requirements for the
degree of Professional Master in
Banking and Finance, School of Management |
| Publisher | Asian Institute of Technology |
| Abstract | Interest rate is a monetary variable by which central bank can control both the inflation rate and GDP growth rate. In most developing economies interest rate negatively related with GDP growth rate. It is so because high interest rate makes the investment costlier and affect the overall growth of the economy negatively. The objective of this paper was to investigate the impact of lending interest rate on GDP growth rate in Bangladesh over the period of 1991-2014 which is the post financial liberalization period. To assess the real impact, inflation rate was also added to the model. For analysis, data has collected from various issues of economic trends, Bangladesh Bank. The correlation co-efficient indicates that these two variables have a moderate & negative correlation. Granger causality test found that lending interest rate significantly causes the GDP growth rate. OLS estimates have been found significant and the model suggest that to achieve the desire growth rate, Bangladesh has to introduce the single digit interest rate. As there is chance that OLS regression model might be spurious this paper also adopted VAR approach to identify the impact of lending interest rate on GDP growth rate. The VAR estimates shows that, in first lag order lending interest rate affects the GDP growth rate negatively. Though the co-efficient found in VAR estimates are not significant but the impulse response function depicts that, GDP growth rate responses to shock in lending interest rate negatively in short run. This paper hopes that, on the basis of real scenario of GDP growth rate-lending interest rate relationship central bank will formulate and implement its monetary policy to boost up the economic growth of Bangladesh. |
| Year | 2016 |
| Type | Project |
| School | School of Management (SOM) |
| Department | Other Field of Studies (No Department) |
| Academic Program/FoS | Master of Business Administration (MBA) (Publication code=SM) |
| Chairperson(s) | Weerakoon A. Wijewardena;Venkatesh, Sundar |
| Examination Committee(s) | Roy, Shyamal ;Zimmermann, Willi |
| Scholarship Donor(s) | Bangladesh Bank (Central Bank of Bangladesh) |