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Exchange Rate Policy under Floating Regime in Bangladesh: An Assessment and Strategic Policy Options

Hossain, Monzur and Ahmed, Mansur (2009): Exchange Rate Policy under Floating Regime in Bangladesh: An Assessment and Strategic Policy Options. Published in: Bangladesh Development Studies , Vol. Vol. X, No. No. 4 (December 2009): pp. 35-67.

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Abstract

This paper examines the exchange rate policy in Bangladesh for the period 2000-08. Regime classification of the paper suggests that Bangladesh maintained a de facto managed floating regime by intervening in the foreign exchange market on a regular basis. This is at odds with the Bangladesh Bank's claim of maintaining de jure floating regimesince end-May 2003. A high exchange rate pass-through is observed along with high market pressure during the period of expansionary monetary policy. Given the thin foreign exchange market and high pass-through effects, it appears difficult for Bangladesh to mainatin a freely floating regime. Although Bangladesh maintained average competitiveness, the currency remained somewhat overvalued. Based on the findings, some pragmatic policies in managing the exchange rate in Bnagladesh have been suggested.

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