Exploring the dynamics of Bangladesh bank's monetary policy: A factor analysis approach

Abstract

This study examined the factors influencing the monetary policy of Bangladesh Bank using a structured questionnaire to interview 207 sample respondents from Bangladesh Bank and 19 listed private conventional commercial banks. The study analyzed and interpreted respondents' opinions using descriptive statistics and varimax rotated factor analysis. The study identified the effect level of various factors influencing the monetary policy of the Bangladesh Bank and ranked the factor variables from 1 to 24 based on the adjusted mean score. The researchers found that the most influential factors in the monetary policy of Bangladesh Bank are price risk, market operations, political-economic variables, and governance. In contrast, the most negligible significant factors are price stability and market liquidity based on the varimax rotated factor analysis. Therefore, the study found that the researcher's set of monetary policy factors has significant implications for the Bangladesh Bank's monetary policy.

---

Keywords

• Monetary Policy
• Factors
• Central Bank
• Bangladesh.

References

1. Afsar, M., & Dogan, E. (2017). The effect of monetary policy on interest rates in Turkey: A microstructural analysis. Business and Economic Research, 7(2), 299-310.
2. Akalpler, E. and Duhok, D. (2018), "Does monetary policy affect economic growth: evidence from Malaysia", Journal of Economic and Administrative Sciences, 34(1), 2-20.
3. Anowor, O. F., & Okorie, G. C. (2016). A reassessment of the impact of monetary policy on economic growth: Study of Nigeria. International Journal of Developing and Emerging Economies, 4(1), 82-90.
4. Binici, M., & Yörükoglu, M. (2011). Capital flows in the post-global financial crisis era: implications for financial stability and monetary policy. Capital flows, commodity price movements and foreign exchange intervention, 57, 319-343.
5. Bouis, R., Rawdanowicz, Ł., Renne, J. P., Watanabe, S., & Christensen, A. K. (2013). The effectiveness of monetary policy since the onset of the financial crisis.
6. Carol M. Woods, Michael C (2011). Edwards, 6- Factor analysis and related methods, Editor(s): C.R. Rao, J.P. Miller, D.C. Rao, Essential Statistical Methods for Medical Statistics, North-Holland, Pages 174-201, ISBN 9780444537379.
7. Chowdhury, L. S., & Afzal, M.N.I. (2015). The effectiveness of monetary policy and fiscal policy in Bangladesh. The Journal of Applied Business and Economics, 17(1), 78.
8. Chowdhury, M. I. (2016). Monetary policy transmission mechanism in Bangladesh: An SVAR approach. Northern Illinois University. ProQuest Dissertations Publishing, No. 10196566.

9. Cocriş, V., & Nucu, A. E. (2013). Interest rate channel in Romania: assessing the effectiveness transmission of monetary policy impulses to inflation and economic growth. Theoretical & Applied Economics, 20(2).
10. Dam, M.M., et al. (2023). The impacts of renewable energy and institutional quality in environmental sustainability in the context of the sustainable development goals: A novel approach with the inverted load capacity factor. Environmental Science and Pollution Research, 30(42), 95394-95409.
11. Dan, H. (2013). External factors for the monetary policy transmission mechanism. The Annals of the University of Oradea, (1), 435-444.
12. Dingela, S., & Khobai, H. (2017). Dynamic impact of money supply on economic growth in South Africa. An ARDL approach. MPRA Paper No. 82539.
13. Dogru, T. et al. (2019). The balance of trade and exchange rates: Theory and contemporary evidence from tourism. Tourism Management, 74, 12-23.
14. Goodfriend, M., & King, R. G. (1988). Financial deregulation, monetary policy, and central banking. Federal Reserve Bank of Richmond Working Paper, (88-1).
15. Farooq, U. et al. (2023). The Nexus between tourism-energy-environmental degradation: Does financial development matter in GCC countries?. Tourism Economics, 13548166231174812.
16. Hair, J. R. J. F., Anderson, R. E., Tatham, R. L., & Black, W. C. (1995). Multivariate data with readings. US America: Prentice Hall Inc.
17. Hameed, D. (2010). Impact of monetary policy on gross domestic product (GDP). Interdisciplinary journal of contemporary research in business, 3(1), 1348-1361.
18. Han, J. et al. (2023). The construction of green finance and high-quality economic development under China’s SDGs target. Environmental Science and Pollution Research, 1-12.
19. Işık, C., Ongan, S., Ozdemir, D., Jabeen, G., Sharif, A., Alvarado, R., & Rehman, A. (2023a). Renewable energy, climate policy uncertainty, industrial production, domestic exports/re-exports, and CO2 emissions in the USA: a SVAR approach. Gondwana Research. https://doi.org/10.1016/j.gr.2023.08.019.
20. Işık, C., Simionescu, M., Ongan, S., Radulescu, M., Yousaf, Z., Rehman, A., ... & Ahmad, M. (2023b). Renewable energy, economic freedom and economic policy uncertainty: New evidence from a dynamic panel threshold analysis for the G-7 and BRIC countries. Stochastic Environmental Research and Risk Assessment, 1-16. https://doi.org/10.1007/s00477-023-02452-x.
21. Işik, C., Kasımatı, E., & Ongan, S. (2017). Analyzing the causalities between economic growth, financial development, international trade, tourism expenditure and/on the CO2 emissions in Greece. Energy Sources, Part B: Economics, Planning, and Policy, 12(7), 665-673.
22. Işik, C. (2015). Foreign direct investment in tourism: Panel data analysis of D7 countries. Athens Journal of Tourism, 2(2), 93-103.
23. Işık, C. (2013). The importance of creating a competitive advantage and investing in information technology for modern economies: An ARDL test approach from Turkey. Journal of the Knowledge Economy, 4, 387-405.
24. Islam, A., Alam, M. M., & Islam, H. (2023a). Human resource accounting disclosure (HRAD) practices: Evidence from banking industry in Bangladesh. Journal of Ekonomi, 5(2), 52-59.
25. Islam, H., Rahman, J., Tanchangya, T., & Islam, M.A. (2023b). Impact of firms’ size, leverage, and net profit margin on firms’ profitability in the manufacturing sector of Bangladesh: An empirical analysis using GMM estimation. Journal of Ekonomi, 5(1), 1-9.
26. Islam, A. (2010). Monetary policy and money supply process in Bangladesh: an analytical review. Master of Arts in Governance and Development Dissertation, BRAC University.
27. James O. W. (2005). Geography, Editor(s): Kimberly Kempf-Leonard, Encyclopedia of Social Measurement, Elsevier, Pages 115-123, ISBN 9780123693983,
28. Kaiser, H. F. (1958). The varimax criterion for analytic rotation in factor analysis. Psychometrika, 23(3), 187-200. Kia, A. (2004). Deficits, debt financing, monetary policy, and inflation in developing countries: internal or external factors? (No. CEP 04-15).
29. Kuttner, K. N. (2001). Monetary policy surprises and interest rates: Evidence from the Fed funds futures market. Journal of monetary economics, 47(3), 523-544.
30. Levy, M. D. (1981). Factors affecting monetary policy in an era of inflation. Journal of Monetary Economics, 8(3), 351-373.
31. Loewen, S., & Gonulal, T. (2015). Exploratory factor analysis and principal components analysis. In advancing quantitative methods in second language research (pp. 182-212). Routledge.
32. Matemilola, B. T., Bany-Ariffin, A. N., & Muhtar, F. E. (2015). The impact of monetary policy on bank lending rate in South Africa. Borsa Istanbul Review, 15(1), 53-59.
33. Mehndiratta, M. (2019). Factors affecting choice of monetary policy frameworks: evidence from emerging and advanced countries. Research Journal (Arts), 13.
34. Miah, M. D., & Banik, S. L. (2017). Monetary Policy and Bank Lending: The Case of Bangladesh. Amity Journal of Finance, 2(1), 1-16.
35. Miyajima, K., Mohanty, M. S., & Yetman, J. (2014). Spillovers of US unconventional monetary policy to Asia: the role of long-term interest rates. BIS Working Papers, No 478, 1-34.
36. Pinshi, C. (2020). Central bank of Congo: four factors affecting monetary policy effectiveness. HAL-03083918. 1-5. Sarbabidya, S. (2015). Sustainable development of mobile phone telecommunication industry of Bangladesh: a holistic marketing approach (Doctoral dissertation, University of Dhaka).
37. Sarıgül, S.S., Merve, Ü., Pınar, A., & Yaşar, E. (2023). The empirical analysis of cereal production under the climate exchange and examining the effects of banks’ domestic credit on cereal production: Evidence from Turkey. Journal of Ekonomi, 5(2), 1-1.
38. Singh, S. (2022). Tourism, money supply, and progressive inflation. Journal of Ekonomi, 4(1), 38-45.
39. Singh, B. (2010). Monetary policy behavior in India: evidence from Taylor-type policy frameworks. Reserve Bank of India Staff Studies, 2, 2010.
40. Tabachnick, B. G., & Fidell, L. S. (2007). Using multivariate statistics (5: e upplagan).
41. Tabachnick, B. G., Fidell, L. S., & Ullman, J. B. (2007). Using multivariate statistics (Vol. 5, pp. 481-498). Boston, MA: Pearson.
42. Williams, B., Onsman, A., & Brown, T. (2010). Exploratory factor analysis: A five-step guide for novices. Australasian journal of paramedicine, 8(3).
43. Woolley, J. T. (1983). Political factors in monetary policy. The political economy of monetary policy: national and international aspects, edited by DR Hodgman, 177-203.
44. Yong, A. G., & Pearce, S. (2013). A beginner’s guide to factor analysis: Focusing on exploratory factor analysis. Tutorials in quantitative methods for psychology, 9(2), 79-94.
45. Zoli, E. (2005). How does fiscal policy affect monetary policy in emerging market countries? (April 2005). BIS Working Paper No. 174, Available at SSRN: https://ssrn.com/abstract=757632 or http://dx.doi.org/10.2139/ssrn.757632.