"Bangladesh's experience with the adoption of interest rate targeting" (Job Market Paper)
Abstract: After decades of operating under a reserve money targeting framework, Bangladesh recently transitioned to an interest rate targeting regime with the primary objective of achieving price stability. Although the new framework initially succeeded in keeping the overnight rate close to its target, the central bank struggled to maintain it for several consecutive months. This study investigates the reasons for this deviation. An overnight rate determination model, adapted to reflect the institutional features of Bangladesh’s reserve market, implies that if the country were ready to adopt interest rate targeting, reserve-market behavior should align with the model’s predictions. These predictions hinge critically on the relationship between the current overnight rate and the expected overnight rate and should hold not only under the new regime but also during the preceding monetary targeting period. The predictions are supported by empirical evidence from three distinct regimes: monetary targeting, successful interest rate targeting, and unsuccessful interest rate targeting. The findings indicate that Bangladesh had the necessary reserve-market infrastructure to maintain the target rate; however, persistent deviations during the unsuccessful phase of the IT regime resulted from the central bank’s limited ability to supply reserves, which underscores the need to develop a deep and liquid domestic government securities market.
"The Role of External Account Dynamics in Transitions to Higher Income Status: Panel Data Evidence" (In progress)
Abstract: This paper examines how countries’ external accounts evolve as they transition to higher income levels. Using data from 184 countries spanning 1976 to 2017, I document how these accounts change as economies move from lower-middle-income (LMIC) to upper-middle-income (UMIC) and high-income (HIC) status. Export-to-GDP and FDI-to-GDP ratios rise significantly as countries transition across income groups, while the import tariff-to-GDP ratio declines even as domestic tax revenue, measured by the tax-to-GDP ratio, increases. Panel fixed-effects regressions, estimated from 1992 to 2017, show that real effective exchange rate appreciation reduces the export-to-GDP ratio in LMICs and UMICs but not in HICs, while higher import tariff-to-GDP ratios tend to lower the export-to-GDP ratio in LMICs and HICs. Global financial indicators, including U.S. bond yields, commodity prices, and S&P 500 volatility, strongly influence capital inflows, particularly in UMICs and HICs.
"Global Liquidity Components, Depository Corporations, and Money Market Fragility" (In progress)
Abstract: This paper advances research on global liquidity and money market fragility by identifying empirical predictors of money market stress across different country groups. Using monthly data from 12 countries spanning developing, emerging, and advanced economies, I examine how global liquidity conditions and depository corporations’ balance sheet indicators predict short-term disruptions in money markets, such as sharp overnight rate spikes (e.g., top 5 percent of the pooled in-sample). I analyze both cyclical and cumulative cyclical deviations in international and domestic liquidity variables using various time-series filtering techniques. Panel probit estimates from December 2001 to August 2009 show that cyclical deviations in depository corporations’ foreign liabilities-to-domestic credit ratio, as well as increases in the real effective exchange rate, significantly raise the risk of overnight rate spikes. The results also indicate that cyclical deviations in several indicators, including depository corporations’ foreign debt securities-to-credit ratio, are more strongly associated with money market stress than their cumulative cyclical deviations.
Publications:
o International Monetary Fund, 2022, ‘Bangladesh in Transition’. Bangladesh: Selected Issues, Country Report No. 22/72. March, Washington.
o International Monetary Fund, 2019, ‘Exports diversification in Bangladesh’. Bangladesh: Selected Issues, Country Report No. 19/300. September, Washington.
o International Monetary Fund, 2018, ‘State-owned commercial bank: performance, issues and reforms’, Bangladesh: Selected Issues, Country Report No. 18/159. June, Washington.
o International Monetary Fund, 2018, ‘Bangladesh: Building on Success’, Financial Inclusion in Asia-Pacific, pp. 87-91. Departmental Paper No. 18/17. September, Washington.
o Khatun, et. al, 2017, ‘Determinants of Bank Profitability in Bangladesh’, Bangladesh Bank Training Academy Journal: Thoughts on Banking and Finance, January-June 2017 issue, Dhaka.
o International Labour Organization, 2013, 'Trade and Employment Policies for Jobs’, ILO Country Report: Trade and Employment, Chapter 5, July, Geneva.
o Masuduzzaman & Hussain, 2012, 'Terms of Trade and Its Implications: Bangladesh Perspective', Working Paper Series: WP1201, Bangladesh Bank, February, Dhaka.
Contributions to IMF Country Reports:
International Monetary Fund, 2020, Bangladesh: Requests for Disbursement under the Rapid Credit Facility and Purchase under the Rapid Financing Instrument. June, Washington.
_____, 2019, Bangladesh: 2019 Article IV Consultation Staff Report. September, Washington.
_____, 2018, Bangladesh: 2018 Article IV Consultation Staff Report. June, Washington.
_____, 2017, Bangladesh: 2017 Article IV Consultation Staff Report. June, Washington.