Inflation and Macroeconomic Stability in Bangladesh: Effects on Growth, Investment, Remittances and Finance

Abstract

The purpose of this study is to analyze the effects of inflation on macroeconomic stability in Bangladesh, specifically investigating how inflation affects GDP growth through key economic variables including Gross Capital Formation (GCF), Broad Money Supply (BM), Foreign Direct Investment (FDI), Personal remittance inflow (PR), and Financial Assets (FA). The data range for my research is from 1976 to 2023, utilizing the Autoregressive Distributed Lag model. By using Augmented Dickey-Fuller (ADF) and Phillips-Perron (PP) unit root tests the stationarity of the variables was assessed. The ARDL Long Run form and Bounds test analyse the correlation between inflation and several macroeconomic variables, confirming a long-term relationship with an F-statistic of 9.823830, exceeding the upper essential thresholds at the five percent significance level. The main findings indicate that inflation adversely impacts GDP growth over the long term. Gross Capital Formation and remittances exert substantial positive relation with economic growth. The impacts of Broad Money and Foreign Direct Investment are varied; however personal remittance demonstrates a beneficial influence on macroeconomic performance. This study's applications extend to macroeconomics, development economics, financial economics, policy design, and applied econometrics. The originality of this research lies in the integration of different macroeconomic variables inside a uniform ARDL framework, providing a holistic perspective on the interaction between inflation, investment, remittances, and financial indicators. This study enhances the current research by integrating both short-run and long-run perspectives on Bangladesh's economy, offering relevant insights for policy development.