Literature Review

Usually monetary policy is defined as the process by which the monetary authority (preferably
Central Bank) of a country controls the supply of money in the economy, targeting a rate of
interest for the purpose of promoting economic growth and stability. For a long period of time
the relationship between monetary policy and the stock market performance has been a
subject of interest among economists and policymakers. The results of the analysis indicates
that money supply, inflation and T-bill rate have a positive impact where the repo rate has a
negative impact on the market index[CITATION Muk133 \l 1033 ]. Growth in money supply in the
economy and export are positively and statistically significantly related with output growth
while growth in government expenditure is negatively and not statistically significant related to
output growth. This study gives evidence that the monetary policy has a greater growth-
stimulating effect on the economy than the fiscal policy [CITATION Mic17 \l 1033 ]. Monetary
policy and inflation together is the reason for a significant portion of fluctuations in the
exchange rate. Monetary policy have a strong, but comparatively short-run impact on
inflation[CITATION Abd95 \l 1033 ]. Exchange rate, interest rate, inflation rate, government
revenue and government expenditure are the most significant policy variables that affect
economic growth in Bangladesh. Narrow money, broad money, exchange rate, government
revenue and expenditure have positive correlation with real GDP indicating that the unit
increase in the above stated variables will lead to the unit increase in real GDP. On the contrary,
inflation rate and interest rate on deposit have negative impact on real GDP [ CITATION Sho15 \l
1033 ]. It has been established that several tools of monetary policy are significantly influencing

economic growth where most significant factors are low variable reserve ratio, flexibility in
rationing of credit and fixation of less margin requirement. From the outlook of fiscal policy,
economic growth in Bangladesh is significantly dependent on investment in current year, net
foreign finance, tax burden or tax revenue and trade balance as important components of fiscal
policy that deserve to be more highlighted by the government during proposing and
implementing budget to foster economic growth[ CITATION Sai18 \l 1033 ]. The comparative
effectiveness of fiscal policy and monetary policy in any economy depends on the fundamental
economic and political conditions at any point in time[ CITATION Lab15 \l 1033 ]. A study inspects
whether the monetary policy action or fiscal policy action has a greater impact on real output
growth using unrestricted VARs based on St. Louis equation. This study suggest that monetary
policy alone has a significantly positive impact on real output growth in Bangladesh. The impact
of fiscal policy on real output growth remains mostly insignificant [ CITATION Hab15 \l 1033 ].
Fazle Kabir governor of Bangladesh Bank declared the monetary policy statement for 2nd half
of financial Year 2017-2018 on January 29, 2017 with an aim to moderate inflation and achieve
sustainable growth. After the monetary policy declaration, Bangladesh Bank directed the banks
to lower the advance deposit ratio (ADR) from 85 per cent to 83.50 per cent, for conventional
banks and 89 percent and for Shariah-based Islamic banks from 90 per cent by June 2018,
which will directly influence the credit growth of the country[ CITATION MSh18 \l 1033 ].
References
Abdur & Minh, 1995. Monetary policy. output and inflation in Banglades: a dynamic analysis. Applied
Economics Letters, Volume 2, pp. 51-55.

Dewan, 2013. An econometric analysis of the Impact of monetary policy on Stock Market Performance
in Bangladesh. World Review of Business Research, Volume 3, pp. 16-29.

Habibur Rahman, 2015. Relative Effectiveness of Monetary and Fiscal Policies on Output Growth in
Bangladesh. Bangladesh Journal Of Political Economy, 22(1&2), pp. 419-440.

Labonnya & Munshi, 2015. The Effectiveness of Monetary policy and Fiscal policy in Bangladesh. Journal
of Applied Business and Economics, 17(1), pp. 78-85.

M. Shamsur Rahman, 2018. The Independent. [Online]

Available at: http://www.theindependentbd.com/printversion/details/137570?
fbclid=IwAR3qt7KW18UPUc9YLgK67ahhSUr9kHTEcw4D2y9JOC5nszic1ciBHKrIIso
[Accessed 9 March 2019].

Michael & Olufemi, 2017. Evaluating the Relative Impact of Monetary policy and Fiscal policy in Nigeria
using St. Louis Equation. ACTA Universitatis Danubius, 1(1), pp. 40-50.

Saiful & Marina, 2018. Economic Growth in Bangladesh: Impact of Fiscal policy and Monetary policy.
Romanian Economic and Business Review, 13(2), pp. 45-57.

Shoyaeb & Mohsin, 2015. The effects of Monetary and Fiscal Policies on economic growth in
Bangladesh. ELK Asia Pacific Journal of Finance and Risk Management, 6(3), pp. 21-34.