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ID 47406
file
creator
Huq Muhammad Tashfiq
subject
Foreign Exchange rate
foreign currency debt
VECM
abstract
Borrowing foreign currency from sources abroad has been a relatively new concept in the private sector of Bangladesh. The major advantage of external commercial borrowing is the lower borrowing cost in the international financial markets compared with the prevailing domestic market. On the other hand, the government of Bangladesh has recently borrowed a large amount of foreign currency to finance large projects. We empirically analyze different aspects of the effect of foreign currency borrowing on exchange rate volatility in the Bangladesh economy using quarterly time series data. Since Bangladesh is an import-based country, exchange rate volatility can exert a great pressure on living standards by increasing the price of imported consumer products. Our analysis using VECM found that both government and private borrowing of foreign currency are cointegrated in the long run with the volatility of the exchange rate, but only the coefficients of government foreign currency borrowing are significant in the short run. However, in the OLS results, both government foreign debt and private foreign debt had a significant effect on exchange rate volatility. Our results suggest that measures to control government debt would be more effective in moderating foreign currency volatility than measures affecting private borrowing.
journal title
IDEC DP2 Series
volume
Volume 8
issue
Issue 8
start page
1
end page
22
date of issued
2018-09
publisher
広島大学大学院国際協力研究科
language
eng
nii type
Departmental Bulletin Paper
HU type
Departmental Bulletin Papers
DCMI type
text
format
application/pdf
text version
publisher
department
Graduate School for International Development and Cooperation
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